State-owned lenders raise MCLR, month after third repo rate hike

RBI has increased benchmark policy rate by 140 bps cumulatively since May

State-owned banks are increasing their marginal cost of funds-based lending rate (MCLR), more than a month after the monetary policy committee (MPC) in August hiked the benchmark policy rate for the third consecutive time to tame headline inflation.

Union Bank of India hiked its MCLR by 5-25 basis points (bps) across tenors, effective September 11. Its overnight to three-year MCLR now ranges from 7 per cent to 8.10 per cent.

Tamil Nadu-based Indian Overseas Bank increased its MCLR by 10 bps across tenors, effective September 10. Its overnight to three-year MCLR now ranges between 7.05 per cent and 7.80 per cent.

Also Read: Bank credit growth hits near nine-year high of 15.5%, shows RBI data

Last week, Bank of Baroda revised its MCLR upwards by up to 15bps with effect from September 12. Accordingly, its overnight to one-year MCLR now ranges from 7 per cent to 7.80 per cent.

HDFC Bank increased its MCLR by 10 bps last week, making it the second-rate hike by India’s largest private lender in as many months.

The Reserve Bank of India (RBI) 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. 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 benchmark, 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.

Credit growth of commercial banks--despite frequent rate hikes--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.

In the current financial year so far, banks have extended Rs 5.66 trillion by way of loans, representing a growth of 4.8 per cent as compared to -0.5 per cent during the same period last year.

Deposit growth was 9.5 per cent YoY, according to the data. Deposit growth has been trailing credit growth in this financial year, exacerbating concerns among analysts that slow deposit growth could emerge as one of the biggest constraints for loan growth in the system.