Last Updated: January 11, 2023, 13:07 IST
State-owned Bank of Baroda (BoB) has announced a 35 basis point hike in the marginal cost of funds-based lending rates (MCLR) across all tenors. The new rates will come into effect from Thursday, January 12, according to a regulatory filing by BoB. The latest hike is more than the 30-basis points revision announced by the bank in December 2022. According to the bank, the MCLR rate for one month has been increased by 20 basis points to 8.15 per cent and the overnight rate has moved up by 35 basis points to 7.85 per cent. The three-month MCLR moved up from 8.05 per cent in December 2022 to 8.25 per cent. The six-month MCLR has been revised to 8.35 per cent from 8.15 per cent.
The new rate for one-year maturities has now increased to 8.50 per cent from the existing 8.20 per cent. Corporate borrowers would be impacted by the increase in MCLR. Retail lending, including mortgages, consumer credit, and small business loans, is mostly based on external benchmarks like the policy repo rate.
This increase reflects the rising cost of capital as banks raise the rates on term deposits to draw in capital to meet the demand for lending. According to a Reserve Bank of India (RBI) report from December 2022, India’s banking system remained resilient in 2021/22 and lenders may need to hike deposit rates even further to keep up with an increase in credit demand.
To control inflation in 2022, the central bank aggressively hiked interest rates. Bank deposit rates lagged. The incremental credit-deposit (C-D) ratio hit a four-year high during 2021–22, as credit growth stepped up and deposit growth moderated, suggested the RBI’s report on Trends and Progress of Banking.
According to recent data from the RBI, loans from Indian banks increased by 17.5% in the two weeks leading up to December 2022 compared to the same period last year. Meanwhile, deposits increased by 9.9 per cent during this time. Since May 2022, the Monetary Policy Committee of the RBI, which sets interest rates, has increased rates five times to a total of 225 basis points.
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