All major banks have increased their external benchmark-based lending rates (EBLRs) by 190 basis points in tandem with the hike in the Reserve Bank's policy repo rate since May this year, though they have been slow in raising the deposit rates.
The Reserve Bank has hiked the key short-term lending rate (repo) by 190 basis points in four tranches since May to contain inflation.
The RBI's Monetary Policy Committee (MPC), which makes recommendations to the central bank regarding interest rates, is set to meet again early next month amid expectations of another repo rate hike.
Increase in October
By October-end 2022, all banks will have increased their EBLRs by 190 bps in tandem with the increase in the policy repo rate since May 2022, according to an RBI article.
Further, banks have also increased their 1-year median marginal cost of funds-based lending rate (MCLR) by 85 bps from May to October 2022.
From October 1, 2019, all banks have to lend only at an interest rate linked to an external benchmark, such as RBI's repo rate or Treasury Bill yield. As a result, monetary policy transmission by banks has gained traction.
Deposit rates
However, the banks have raised the interest rates on term deposits by a much lower margin.
The median term deposit rates (average card rates on retail deposits) on fresh deposits increased by 48 bps from May to October 2022. Banks have increased their bulk deposit rates higher than retail deposit rates.
Across bank groups, the article said, transmission to lending and deposit rates of private sector banks (PVBs) has exceeded that of public sector banks (PSBs) in the current tightening period.
Credit growth for PVBs has been higher than for PSBs in the current interest rate tightening period beginning May this year.
In view of the increase in credit demand, private banks have increased their lending and deposit rates to maintain higher net interest margins (NIMs).
The next meeting of the MPC is scheduled during December 5-7, 2022.
