The Reserve Bank of India’s shock rate increase Wednesday rippled through the banking system immediately with ICICI Bank and Bank of Baroda raising their lending rates as much as 40 basis points, the amount the central bank did to its policy rate. Others are likely to follow with similar increases that would eat into the disposable incomes of borrowers damping demand for non-discretionary items.
While all banks will automatically pass on the entire repo rate hike on external benchmark linked loans, their asset liability committees will decide on rate hikes on marginal cost lending rate (MCLR) and fixed rate loans.
Private lender ICICI Bank posted on its website that it had raised its external benchmark lending rate (EBLR) to 8.10%.
“ICICI Bank External Benchmark Lending Rate (I-EBLR) is referenced to RBI Policy Repo Rate with a mark-up over Repo Rate. I-EBLR is 8.10% p.a.p.m. effective May 4, 2022,” the update said.
The bank’s one-year MCLR as on May 1, 2022 stands at 7.25%.
Public sector lender Bank of Baroda too made a similar announcement.
“With effect from May 5, 2022, the relevant Baroda Repo Linked Lending Rate (BRLLR) for retail loans is 6.90 percent,” it said.
Bank of India too said its repo based lending rate has risen due to RBI rate hike.
“This is to inform that Bank’s Repo Based Lending Rate (RBLR) has been changed to 7.25% w.e.f 04.05.2022 in terms of Pricing Policy approved by Bank’s Board,” a notification to the exchanges stated.
Since the last two years, interest rates have been at historic lows with home loans starting from 6.5%, car loans from 7% and personal loans from 10%. Bankers say that interest rates could rise as much as 200 basis points, if inflation continues to breach the regulator’s comfort band.
Banks in anticipation of an impending rate hike have already been passing on rate hikes to borrowers. State Bank if India, the largest lender had raised its marginal cost of lending rate recently by 10 basis points. One basis point is equivalent to a hundredth of a percentage points.
Bank of Baroda had raised the MCLR by five basis points across tenors while Kotak Mahindra Bank had raised its MCLR by five basis points across all tenors. Banks and non-bank lenders have raised lending rates by up to 15 basis points over the past one month on tightening liquidity conditions and higher deposit costs.