IndusInd Bank and RBL Bank increase MCLR days ahead of MPC meeting

MPC has increased the repo rate by 140 bps cumulatively since May in an effort to rein in inflation

IndusInd Bank and RBL Bank have increased their marginal cost of funds-based lending rates (MCLR) effective Thursday, announcing their decision days ahead of the monetary policy meeting’s (MPC) meeting on repo rate.

IndusInd Bank hiked its MCLR by 5 to10 basis points across tenors. The private lender’s overnight to three-year MCLR now ranges between 8.30 per cent and 9.80 per cent.

RBL Bank, which is privately held, hiked its lending rate by 20 bps across tenors. Its overnight to one-year MCLR now ranges between 8.25 per cent and 9.45 per cent.

Last week, mortgage financiers LIC Housing Finance and Indiabulls Housing Finance raised their lending rates by 15 bps and 10 bps.

The State Bank of India (SBI), the country’s largest, state-run bank, has kept lending rates unchanged in September. Its overnight to three-year MCLR range between 7.35 per cent to 8 per cent.

The six-member rate setting committee of the Reserve Bank of India (RBI) will meet next week and it is likely to lift the policy repo rate by 35-50 bps to tame inflation within its target range, said a poll of analysts Business Standard published on Monday.

The MPC has increased the repo rate by 140 bps cumulatively since May. Lenders have passed on the entire rate hike to their customers in external benchmark-linked loans. However, MCLR-linked loans have not seen the same proportion of hike in rates.

RBI data shows that about 43.6 per cent loans in the banking system are linked to external benchmarks, which could be the repo rate, or yields on government securities such as 91-day and 182-day treasury bills. About 49.2 per cent of the banking system loans are linked to the MCLR.

Despite the frequent rate hikes, credit growth of commercial banks is at a near nine-year high of 15.5 per cent year-on-year for the week ended August 26, according to RBI data. The credit growth is the highest since November 1, 2013, when it was 16.1 per cent.