MUMBAI: Banks have started raising lending rates after the RBI hiked the repo rate by half a percentage point on Friday. The rate at which the RBI lends to banks is called the repo rate. While the transfer of lending rates is almost automatic due to the linkage to external benchmarks, the increase in deposit rates may slow as there is excess liquidity in the system and most banks want a higher loan-to-deposit ratio to improve. Edge.
Lenders that have revised their interest rates include ICICI Bank, Canara Bank, Bank of Baroda and Punjab National Bank. These banks have adjusted the external reference rates linked to the repo rate. According to ICICI Bank’s website, the External Benchmark Lending Rate (I-BLR) is 9.1% in August 2022. The best rates for home loans from private lenders are 8.1% (repo rate +2.7%).
The Bank of Baroda said the best rate under the repo-linked lending rate for AAA-rated companies would be 7.6% from August 6. According to its website, home loan interest rates range from 7.95% to 9.3%.
The SBI website shows the old mortgage rate starting at 7.55% (effective June 15, 2022). While interest rates for existing borrowers will increase by 50 basis points (100 basis points = 1 percentage point), the bank has yet to announce the new rate schedule. The RBI hiked the repo rate to 5.4 percent from 4.9 percent on Friday.
Although these banks have already updated their websites, interest rates on all loans linked to the repo rate will increase. About 44% of all banks and most home loans are linked to the repo rate. Bankers said they don’t expect a rate hike to affect credit demand, which has risen after two years of a Covid-induced slowdown.
Announcing the results on Saturday, SBI Chairman Dinesh Khara said he expected credit growth of 15% in the current fiscal year. The bank is not aggressively increasing deposits as its loan-to-deposit ratio is 63%, giving it the opportunity to expand its loan book. Keki Mistry, CEO of HDFC VC, also said that he does not expect demand for home loans to fall due to the rate hike.
According to RBI, the repo-linked rate change has accelerated the transmission of monetary policy action. “A survey of selected banks has shown that 20% of the loan book linked to the external benchmark-linked rate has a lower adjustment frequency than the underlying benchmark. For private banks, more than a third of loans are fixed rate, which in rising interest rate cycles can suffer unrealized losses by reducing the net present value of future cash flows,” the RBI said in its Financial Stability Report in June 2022.