Banks are raising interest rates on repo-linked loans and offering more on deposits

MUMBAI – ICICI Bank and Bank of Baroda announced increases in lending rates by 40 basis points (100 basis points = 1 percentage point) after a similar hike in policy rates by the Reserve Bank of India (RBI) on Wednesday.
Kotak Mahindra Bank increased its retail term deposit rates across multiple maturities. The biggest increase was for 23-month deposits, where rates rose 35 basis points from 5.25% to 5.6%. The bank also increased the yield on its 390-day deposits by 30 basis points from 5.2% to 5.5%. The new deposit rates will apply from May 6th.

ICICI Bank said on its website that its external reference rate, which is linked to RBI’s repo rate, will be increased to 8.10%. The Bank of Baroda also announced the change in its Baroda Repo-Linked Lending Rate (BRLLR) by 40 basis points effective Thursday. For personal loans, the BRLLR is 6.9% after accounting for a 2.5% premium on the repo rate. The central bank of India also revised the RBLR by 40 basis points effective May 6th. The Central Bank of India’s revised RBLR will be 7.25% plus the credit risk premium (CRP), up from the existing rate of 6.85% plus CRP, the lender said.
Speaking to ET Now, SBI chairman Dinesh Khara said his analysis suggests the interest rate revision would be positive for the bank as 70% of its loan book is floating. He said the bank would review its deposit and lending rates at its upcoming Asset Liability Management Committee meeting.
Announcing a revision of floating rates is a formality as regulations dictate that these must move in line with changes in the benchmark. For home loans and other retail and small business loans, the benchmark is most often the RBI repo rate. Around 40% of all bank loans are linked to the repo rate.
While borrowing costs for existing customers increase immediately, lenders have the ability to keep interest rates low for new borrowers by adjusting spreads.

Cheryl Tenny

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