EMIs set to rise as SBI, others hike lending rates

Mar 03, 2018, 03:24
EMIs set to rise as SBI, others hike lending rates

This indicates that the interest in the economy has moved up even as the Reserve Bank of India (RBI) in February kept its policy rates unchanged for the third time. With MCLR going up, the home loan rates in all probability will also shoot up unless banks reduce the mark-up (margin) in the loans.

SBI discloses MCLR for seven tenors-overnight, one month, three months, six months, one year, two years and three years. SBI hiked deposit rates by 50 basis points in four maturity buckets - 7 days to 45 days; 2 years to less than 3 years; 3 years to less than 5 years; 5 years and up to 10 years.

"And when you change your deposit rates, the impact is also on the MCLR".

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Spread across three different categories, separate interest rate hikes have been effected for deposits that are for less than one crore, between one crore but less than 10 crore and deposits made for over 10 crore.

In a notification on its website, the SBI - the country's largest bank - announced that MCLRs have been raised by 10-20 basis points.

With bank credit picking up and deposits growing slower than the credit, banks are forced to garner deposits by hiking rates and prepare to meet the credit demands of industry and retail borrowers. SBI has a very strong deposit profile with an average CASA ratio of ~40% over last five years, second best after HDFC Bank. Under this new increased interest rates, the users can get a good rate of interest. For stores developing in two to under three years, the mass rates have been expanded by 75bps to 6.75%. New loans will now become expensive as they are linked to the one-year MCLR.

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"The trend indicates hardening of interest rate on both sides of the balance sheet-deposits as well as loans".

Prior to this, the one-year MCLR (marginal cost of funds based lending rate), on which most of the lending is based now, was at 7.95 per cent. "As far as lending rates are concerned, there is gradual recognition that external conditions such as inflation from oil and possibly from food till the monsoons may push the interest rates up", said Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services Llp.

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