Following the Reserve Bank of India’s (RBI’s) six-member Monetary Policy Committee (MPC) raising the policy repo rate by 25 basis points (bps) to 5.5 per cent, several domestic banks, including Bank of Baroda (BoB), Punjab National Bank, Indian Bank, Indian Overseas Bank, Bank of India and RBL Bank, have raised their repo-linked lending rates by a commensurate 25 bps.
This means new loans linked to external benchmarks such as the repo rate will become 25 bps costlier for borrowers. Existing loans linked to external benchmarks will also be repriced upwards by a commensurate 25 bps, typically within 90 days. While transmission to lending rates is immediate for external benchmark-linked loans, the pass-through to deposit rates is likely to take time, particularly for the existing deposit base, as banks are currently flush with liquidity from foreign currency non-resident (FCNR(B)) deposits. However, rates on fresh deposits could harden as short-term money market rates have risen in recent weeks.
State-owned BoB has raised its Baroda Repo Based Lending Rate by 25 bps to 8.15 per cent. This implies a spread of 2.65 percentage points over the repo rate of 5.5 per cent. Another state-owned lender, Punjab National Bank, has revised its repo-linked lending rate to 8.35 per cent from 8.10 per cent.
Indian Bank has raised its Repo Linked Benchmark Lending Rate by 25 bps to 8.20 per cent from 7.95 per cent, effective October 8. Indian Overseas Bank has also raised its repo-linked lending rate by 25 bps to 8.35 per cent from 8.10 per cent.
UCO Bank has revised several of its benchmark-linked lending rates with effect from October 8. Its three-month Benchmark Lending Rate (BLR) has been increased to 5.30 per cent from 5.25 per cent, while the six-month Treasury Bill Linked Rate (TBLR) has been raised to 5.70 per cent from 5.55 per cent. The 12-month TBLR has been revised to 5.95 per cent from 5.70 per cent.
The bank has also raised its government securities (G-Sec)-linked rates. Its one-year G-Sec rate has been increased to 6.26 per cent from 5.88 per cent, while the 10-year G-Sec yield has been raised to 7.32 per cent from 7.09 per cent. The repo-linked rate for UCO Float has been increased to 8.30 per cent from 8.05 per cent, while the repo-linked rate for UCO Prime has been raised to 5.50 per cent from 5.25 per cent.
Bank of India’s Repo Based Lending Rate has also gone up by 25 bps to 8.35 per cent from 8.10 per cent. Meanwhile, RBL Bank’s repo-linked lending rate stood at 8.50 per cent as of October 7.
On Wednesday, the RBI’s six-member rate-setting panel unanimously voted to raise the policy repo rate by 25 bps to 5.5 per cent, in line with expectations. The surprise, however, was the change in the policy stance to “calibrated tightening” from neutral. Four members backed the change, while external members Ram Singh and Nagesh Kumar favoured retaining the neutral stance.
The policy tone was hawkish, with RBI Governor Sanjay Malhotra stating that “rate cuts are off the table in the near term, and policy action ahead can only be a rate hike or a pause, depending on the evolving conditions and the outlook”.
Economists expect the current tightening cycle to be shallow, with a cumulative 75 bps rate increase expected in the current cycle. Borrowing costs could therefore rise further in the coming months.
