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Loans become more expensive prior to RBI policy meeting

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Loans become more expensive prior to RBI policy meeting

Prior to the meeting of the MPC (monetary policy committee) of the Reserve Bank of India (RBI) where the rates are decided, several lenders in India have already scaled up their rates of interest on loans to the tune of 10 basis points. Banks that have increased interest rates include Kotak Mahindra Bank, State Bank of India (SBI), Union Bank of India, ICICI Bank, HDFC Bank and PNB (Punjab National Bank). The decision of the Monetary Policy Committee of the RBI will be officially communicated on the 6th of June, 2018, as per reports.

The MCLR (marginal cost of lending rate) is under review each month by banks and after this round of interest rate increases, the 1-year MCLR at SBI is now 8.25% as compared to 8.15% previously. This is the second increase in rates at the bank this year. HDFC has also scaled up by its PLR (prime lending rate) by 10 basis points and ICICI Bank has increased its MCLR for 1 year by 10 basis points and this stands at 8.40% currently. HDFC home loans will now start from 8.5%. The new rates will be effective from the 2nd of June, 2018 and have been hiked due to cost increases with regard to wholesale funds.

The 1-year MCLR at Punjab National Bank stands at 8.4% as compared to 8.3% previously and this is 8.45% for Union Bank now. Kotak Mahindra Bank has increased its 1-year MCLR by 20 basis points. This now stands at 8.9%. Banks have already decided to increase rates without waiting for the decisions that will be announced after the RBI meeting. Axis Bank has already increased rates on deposits to 7.4% with new tenor of 12 months, 11 days and 5 days to under 12 months.

Karnataka Bank has already increased deposit rates to 7.25% from 7.10% for 1-2 years and SBI has already increased term deposit rates by up to 25 basis points for amounts which are lower than Rs. 1 crore. Deposit rates are going up since growth has gone up in the loan segment and there has been slowing growth for deposits. The increase in rates will automatically lead to higher rates of lending in the near future since MCLR will be calculated on the basis of the cost of deposits.

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