ICICI Bank, Bandhan Bank, Karnataka Bank increase MCLR across tenors

Loan rates going up after central bank's rate-setting committee hiked benchmark policy rate by 50 basis points

ICICI Bank and Bandhan Bank are among lenders that on Thursday increased their marginal cost of funds-based lending rate (MCLR), almost a month after the rate-setting committee of the Reserve Bank of India (RBI) hiked the benchmark policy rate by 50 basis points (bps).

ICICI Bank, India’s second largest private sector lender, hiked its MCLR by 10 bps across tenors, effective September 1. Its overnight to one-year MCLR now ranges between 7.75 per cent and 8 per cent, according to the bank’s website.

Kolkata-based private sector lender Bandhan Bank increased its MCLR by 41-65 bps across tenors, resulting in its overnight to three-year MCLR ranging from 9.14 per cent to 10.47 per cent.

Karnataka Bank raised its MCLR by 10 bps across tenors, with effect from September 1. Its overnight to one-year MCLR now ranges from 8.35 per cent to 9.10 per cent.

The six-member monetary policy committee (MPC) raised the repo rate by 50 bps to 5.40 per cent in early August, its third successive rate hike to tame headline inflation, which has been hovering over the threshold level for quite some time now.

Earlier this week, public sector lender Punjab National Bank hiked its MCLR by 5 bps.

State Bank of India (SBI), HDFC Bank, Axis Bank, Kotak Mahindra Bank, Canara Bank, and others too revised their MCLR upwards last month.

While lenders have been quick to pass on the repo rate hike by the MPC to the borrowers, the deposit rates have not kept pace. But banks have now started offering special deposit schemes during the festive season to attract more deposits to support the credit demand in the economy.

Several lenders, including SBI, Bank of Baroda, and few others have come up with such offers on fixed deposits for limited periods and are offering higher than usual interest rates.

According to RBI, during April-July 2022, banks have increased their one-year median MCLR by 40 bps. The weighted average lending rate (WALR) on fresh and outstanding rupee loans increased by 8 bps and 14 bps, respectively. And the weighted average domestic term deposit rate (WADTDR) on outstanding deposits increased by 6 bps.

“The extent of pass-through is higher for lending rates vis-à-vis retail term deposit rates as the latter are dependent on demand for credit as well as liquidity conditions in the banking system. As liquidity in the system has started normalising, banks have started raising their bulk deposit rates aggressively,” the RBI said in its August bulletin.