ICICI Bank, PNB and HDFC raise lending rates
MUMBAI: Two large banks, ICICI Bank and Punjab National Bank (PNB), and mortgage lender Housing Development Finance Corp ( HDFC) on Wednesday hiked their lending rates in the range of 5-30 basis points (bps) as lenders adjusted pricing of assets in a rising interest rate scenario.
ICICI Bank and PNB raised their marginal cost of fundsbased lending rates (MCLR), an internal benchmark used by banks to price corporate loans, by 30 bps and 15 bps across tenors, respectively. The hike in MCLR would also impact a section of retail and small business borrowers who took loans before October 2019.
The Reserve Bank of India (RBI) had asked banks to link all new floating rate personal and micro and small enterprises loans to an external benchmark from October 2019 and medium enterprise loans in April 2020.
Meanwhile, HDFC Ltd on Wednesday raised its retail prime lending rate (RPLR) on housing loans, on which its floating rate mortgages are benchmarked, by 5 bps. Loans on the RPLR benchmark are offered at a discount to customers, unlike a bank’s benchmark where loans are offered after adding a spread.
For larger firms, lending rates are primarily linked to MCLR, where transmission is slower than external benchmarks like the repo and treasury bills.
As of December 31, 70.9% of all loans to large industries were linked to MCLR and 20.4% to external benchmarks. For small businesses, loans linked to MCLR were at 24.2% of their aggregate loans, while 69.2% of loans were on external benchmarks, showed data from the RBI.
The rate-setting panel of the central bank met out of turn last month to “reassess the evolving inflation-growth dynamics” and the impact of the developments after its previous meeting in April.
All six members of the committee voted for a 40 bps hike in repo rate that takes the repo rate up to 4.4%.
It is expected that there are more hikes in the offing as the central bank tries to tame inflation trends.
Following RBI’s move in May, banks increased their interest rates on loan linked to the repo rate and a few more rounds could follow.