People walk past a branch of Axis Bank Ltd. on Mahatma Gandhi Road in Gangtok, India (Photographer: Prashanth Vishwanathan/Bloomberg)  

Facing Margin Pressure, Axis Bank Ups Loan Rates By 5 Basis Points

In a surprise move, the third largest private sector lender Axis Bank, which has been facing pressure in the past quarters, today hiked its lending rates by a marginal 0.05 percent.

The move to increase the marginal cost of funds based lending rate comes days after the nation's largest lender SBI had lowered its rates under the older base rate system by a steep 0.30 percent.

"The bank has decided to increase the MCLRs by 0.05 percent across all tenors," Axis Bank said in a regulatory filing late in the evening. The hike is effective tomorrow, the bank added.

The one-year MCLR, at which rate home loans and other important products are priced, will now stand at 8.30 percent, the bank said.

The lender, which has been witnessing mounting asset quality and bottom-line pressures for the past many quarters, however, did not give any rationale for the move.

The rate action comes amid a hardening of bond yields over the past few months, which is bound to make banks report huge mark-to-market losses, which domestic rating Icra had pegged at around Rs 15,000 crore in the December quarter.

The Reserve Bank has also virtually told the banks that it would not allow any special dispensation to safeguard their bottom lines.

The MCLR replaced the earlier base rate system in April 2016, to better translate policy actions and cost of funding faster into the pricing of loans. Banks calculate the rate on a pre-disclosed formula and rates are reviewed on a monthly basis.

It can be noted that there have been deposit rate hikes by a few lenders in select tenors. Also, the review comes amid a virtual doubling in the credit growth to the double digit figure after a dull FY17.

At its September quarter earnings, the bank had reported a slippage in its net interest margin to 3.45 percent, affirmed that was in line with the guidance of a 0.20 percent compression given earlier.