An employee serves a customer at the front desk inside a bank branch. (Photographer: Asim Hafeez/Bloomberg)

Banks In Wait And Watch Mode After MPC Hikes Repo Rate

Banks will wait for a while before raising their lending and deposit rates following the monetary policy committee’s decision to raise the repo rate for the first time in more than four years.

“Lending rates are linked with deposit rates. Don’t expect any immediate movement,” said PK Gupta, managing director at State Bank of India said after the MPC today voted unanimously to hike the benchmark repo rate by 25 basis points to 6.25 percent.

Deposit rates are unlikely to move up immediately since most banks had also hiked these rates only recently, according to Rajkiran Rai, managing director and chief executive officer at Union Bank of India. “Besides, the repo rate is only a signalling rate and has no immediate impact,” he added.

To be sure, a clutch of lenders had recently revised their marginal cost of funds based lending rate over the last few weeks.

Also read: Lenders Hike Rates As Funding Costs Rise

SBI, ICICI Bank and Punjab National Bank have all hiked their MCLR by 10 basis points across maturities. Bank of Baroda announced a 5 bps increase in its MCLR across maturities. Kotak Mahindra Bank hiked its MCLR by 10-20 bps, across maturities. Housing finance company HDFC Ltd. too increased its retail prime lending rate by 10 bps. (One basis point is one-hundredth of a percentage point.)

Banks In Wait And Watch Mode After MPC Hikes Repo Rate

While calculating MCLR, the major weightage is placed on the marginal cost of deposits and other borrowings. Lenders also take into account return on net worth, negative carry on cash reserve ratio and overall operating cost.