Led by the State Bank of India (SBI)
, the country's top lender by assets, banks on Thursday raised their marginal cost of funds-based lending rates (MCLR) across most maturities, effective immediately.
SBI, which accounts for more than a fifth of India's banking assets, revised the one-year MCLR by 20 basis points (bps) to 8.15% from 7.95%. The revised MCLR signals a rise in equated monthly installments (EMIs) on retail loans, including home and car loans, unless banks reduce the mark-up (margin) in the loans.
Following SBI, ICICI too raised its overnight MCLR by 15bps and one-year MCLR by 10bps, while Punjab National Bank (PNB) hiked its one-year MCLR by 15bps. Other lenders are expected to follow suit in the week to come.
It is the first hike in the one-year MCLR since the inception of the new lending rate system in April 2016, according to Reuters. Bankers opine that the hike in the one-year MCLR was due to the increase in deposit rates, shortage of liquidity in the system, and the overall cost of funds.
Under the present loan pricing mechanism, which is based on the MCLR, any upward revision in the cost of funds, including deposits pricing, will lead all retail loans, including home loans, auto loans, education loans, certain personal loans and loans against properties to cost more.
For overnight tenor, SBI’s revised MCLR is 7.80, up 10bps from existing 7.70. For one-month and three-month tenor, the MCLR rates have not been changed. For a six-month tenor, the MCLR has been revised upwards by 10bps to 8%. For two-year and three-year tenor, the new MCLR is 8.25% and 8.35%, respectively.
The hike in deposit rates and MCLR rates signal an upward movement in the interest rate cycle in the banking system. On Wednesday, SBI had raised interest rates on domestic bulk term deposits across most maturities.
The bank’s consolidated loan book as on Q3FY18 stood at ~Rs18.5 lakh cr. Its consolidated GNPA & NNPA stood at 10.35% & 5.61% as of Q3FY18. SBI has a very strong deposit profile with an average CASA ratio of ~40% over last five years, second best after HDFC Bank.
State Bank of India ended at Rs262.55 down by Rs6.2, or 2.31%, from its previous closing of Rs268.75 on the BSE.