Banks hike repo-linked loan rates, offer more on deposits

MUMBAI: ICICI Bank and Bank of Baroda have notified the increase in lending rates by 40 basis points (100bps = 1 percentage point) following a similar increase in key policy rates by the Reserve Bank of India (RBI) on Wednesday.
Kotak Mahindra Bank raised its fixed deposit rates across multiple maturities for retail customers. The sharpest increase has been for 23-month deposits where rates have been increased by 35bps from 5.25% to 5.6%. The bank has also increased returns on its 390-day deposits by 30bps from 5.2% to 5.5%. The new deposit rates are effective from May 6.
ICICI Bank on its website said that its external benchmark lending rate, which is linked to the RBI’s repo rate, is increased to 8.10%. Bank of Baroda also notified the revision of its ‘Baroda repo-linked lending rate’ (BRLLR) by 40bps with effect from Thursday. For retail loans, BRLLR is 6.9% after factoring in a spread of 2.5% over the repo rate. State-owned Central Bank of India has also revised the RBLR by 40bps with effect from May 6. The revised RBLR of Central Bank of India will be 7.25% plus the credit risk premium (CRP), up from existing rate of 6.85% plus CRP, the lender said.
Speaking to ET Now, SBI chairman Dinesh Khara said that his analysis indicates that the revision in interest rates would be a positive for the bank as 70% of its loan book is floating. He said that the bank would review its deposit and lending rates in its forthcoming asset-liability management committee meeting.
The announcement of revision in floating rates is a formality as regulations require these to move in tandem with the changes in the benchmark. For home loans and other retail credit as well as loans to small businesses, the benchmark is mostly the RBI’s repo rate. Around 40% of all bank loans are linked to the repo rate.
While borrowing costs for existing customers will rise immediately, lenders have the option of keeping rates low for new borrowers by revising the spreads.