HDFC Bank increases its MCLR by 10 basis points

8 Sept 2022 , 10:09 AM

With effect from September 7, the biggest private sector lender in the nation, HDFC Bank, raised its marginal cost of funds-based lending rate (MCLR) by 10 basis points (bps). The Reserve Bank of India (RBIsix-member )'s rate-setting committee raised the benchmark repo rate by 50 basis points to 5.40 %, resulting in the second rate increase by the private sector lender in just two months.

The current range of the MCLR at HDFC Bank is 7.90 to 8.40 %. The MCLR for the overnight and one-month periods is 7.90%. The MCLR for the first three months is 7.95%, while the MCLR for the first six months is 8.05%. The rates for one year, two years, and three years are 8.20%, 8.30%, and 8.40%, respectively.

Just after the repo rate increase last month, the lender increased its MCLR across all loan tenures by 5—10 basis points (bps). Since May, the repo rate has been raised by 140 bps in an effort to reduce headline inflation, which has long been close to the RBI's tolerance level.

The repo rate or rates on government assets like 91-day and 182-day treasury bills may serve as the external benchmark for 43.6% of banking system loans, according to statistics from the RBI. Approximately 49.2% of loans within the banking sector are connected to the MCLR.

While lenders were eager to pass on to borrowers the repo rate increase announced by the MPC, deposit rates lagged behind. However, a lot of banks have recently started hiking their deposit rates and have introduced unique holiday-season programs in which they are temporarily giving higher interest rates on their fixed deposits in order to raise money to support the demand for credit in the economy.

Credit demand in the economy has been quite strong despite the repeated rate increases. According to the most recent RBI statistics, as of August 12, banks' credit rose at a rate of 15.3% while deposits only grew by 8.8%, creating a growth difference between the two of more than 600 basis points. In the future, economists have warned that a growing disparity between deposit and credit growth might result in supply-side limitations.

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