Banks Hike Repo-Linked Loan Rates, Offer More On Deposits

ICICI Bank and also the Bank of Baroda notified an increase in the lending rates by 40 basis points where the 100bps means 1 percentage point following the same increase in the key policy rates by the Reserve bank of India [RBI] on Wednesday 4th May 2022. 

Kotak Mahindra Bank raises the fixed deposit rates in several maturities for retail customers. Also, the sharpest increase is for 23 months deeper and their rates also get increased by 25bps from 5.25% to .6%. Also, the bank increased the return on the 390 days deposits by 30bps which is from 5.2% to 5.5%. Also, the new deposit rate will be in effect from 6th May 2022.

Banks Hike Repo-Linked Loan Rates, Offer More On Deposits

Banks Hike Repo-Linked Loan Rates, Offer More On Deposits

ICICI Bank said on its website that the external benchmark lending rate is linked with the RBIs repo and also it is increased to 8.10%. Also, the bank of Baroda notified the revision of the Baroda repo link lending rate by 40bps which is in effect from Thursday.

For the retail loans, BELLE is 6.9% in a spread of 2.5% over the repo rate. The state-owned central bank of India also revised the RBLR by 40bps which will be effective from 6th May. 

The revised RBLR of the central bank of India is 7.25% and the credit risk premium is up from the existing rate of 6.85% along with the CRP. SBI chairman Dinesh Khara said that the analysis shows that the revision in the interest rate will be positive for the bank as 70% of their loan book is floating. Also, he said that the bank also reviewed its deposit and also the lending rates in its forthcoming asset-liability management committee meeting. 

The revision announcement into the floating rate is a kind of formality as the regulations need to move in tandem with the changes in the benchmark. Also, for the home loans and the other retail credit loans to the small businesses, the benchmark is the RBI’s repo rate. Nearly 40% of all bank loans will get linked with the repo rate. 

The borrowing costs for the old customers will rise in an immediate manner and the lended get an option to keep the rates low for the new borrower by simply revising the spreads. One of the senior bankers said that the banks absorb the small reduction into their spread and they will not reduce it by 40bps as the central bank asks them to simply park more into the cash reserves form. Also, a hike into the cash reserve is having an impact of reducing the margin between the interest cost and also into the income interest as the money has been parked as the cash reserves with the RBI which doesn’t earn the interest.

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