Banks increase lending rates
A day after the Reserve Bank of India (RBI) hiked its repo rate—the rate at which RBI lends money to commercial banks—by 50 basis points, mortgage lender HDFC Ltd and a host of nationalised and private sector banks increased their lending rates which would lead to higher equated monthly instalments for borrowers. Bank of Baroda, Bank of India, Punjab National Bank, ICICI Bank, RBL Bank, Federal Bank increased their loan rates and more banks are likely to follow suit.
The RBI’s hike in repo rate on Wednesday follows a surprise 40-bps repo rate hike on May 4.
HDFC Ltd increased its retail prime lending rate (RPLR) on housing loans on which its adjustable rate home loans (ARHL) are benchmarked by 50 basis points with effect from June 10. HDFC home loan rates start from 7.55 per cent onwards. On the same lines, Bank of Baroda (BoB) and Punjab National Bank, increased their retail loans linked to repo-linked lending rate (RLLR) from Thursday. For retail loans, applicable RLLR is 7.40 per cent (current RBI repo rate is 4.9 per cent plus a mark-up of 2.5 per cent),” BoB said. PNB hiked RLLR from 6.9 per cent to 7.4 per cent effective Thursday. Bank of India hiked its repo-based lending rate (RBLR) effective June 8 at 7.75 per cent.
Private sector lender ICICI Bank has increased its external benchmark lending rate by 50 basis points.
“ICICI Bank External Benchmark Lending Rate” (I-EBLR) is referenced to RBI policy repo rate with a mark-up over repo rate. IEBLR is 8.60 per cent p.a.p.m. effective June 8, 2022,” the bank said on its website.
RBL Bank has also raised its repo-linked lending rate by 50 bps to 10 per cent, effective June 8.
Typically lending rates used to be based on a bank’s base rate or marginal cost of funds-based lending rate (MCLR) where banks were slow in passing the benefit of rate cuts by the RBI to borrowers. To ensure a speedier monetary transmission, the RBI
mandated the introduction of an external benchmark system of lending (EBLR) for select sectors in October 2019. Any change in the benchmark rate is mandated to be passed on to lending rates for new and existing borrowers on a one-to-one basis and banks are restricted from adjusting their spreads for existing borrowers for three years in the absence of any significant credit event. At a system wide level, around 20-30 per cent of the aggregate loans are currently anchored to MCLR while 40 per cent of the loans are anchored to EBLR including 58.2 per cent of home loans that are linked to the external benchmark, showed the Reserve Bank of India data.