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State Bank of India -- the country's largest lender -- has hiked the deposit as well as the base rate -- a day ahead of crucial monetary policy review, which may ease money market liquidity conditions.
The lender has hiked the base rate by 10 bps to 9.8% while deposit rates by 30-100 bps across various maturities.
Most importantly, the lender has also hiked the spreads on home and auto loans by 30 bps.
According to Arundhati Bhattacharya, managing director and chief financial officer of SBI, the increase in lending rate will help it to protect its margins at 3.5%.
"Our deposit rate were lower than what others were offering. So, we have aligned it with the market. We have also seen credit pick up in the last 60 days so we need to beef up resource mobilization," Bhattacharya told Business Standard.
Short term rates have hardened by 300 bps following RBI's liquidity tightening measures on 15 July. The central bank had hiked the marginal standing facility rate by 200 bps and capped banks' borrowing from liquidity adjustment facility. In the last few days, banks had borrowed around Rs 1 lakh crore from MSF, at 10.25%. These measures have increased the cost of funds of banks.
While most private sector lenders have hiked the base rate, most public sector banks were holding on to the rates hoping that the central bank will withdraw the liquidity tightening measures.
After the US Fed decided to continue with its stimulus programme, though the market was expected some tapering, now all eyes are on the Indian central bank which will announce its mid quarter review of monetary policy tomorrow. While RBI is widely expected to hold rates but market players expect it to roll back of liquidity tightening measures as the currency has stabilised in the 15 days.
