MUMBAI: The nation’s largest lender State Bank of India on Wednesday marginally increased the short-term lending rates across overnight to three year maturities by 10 basis points (bps) with immediate effect. While banks have almost fully passed on the 250 bps interest rate hikes by the Reserve Bank since last May, they have not yet increased deposit rates commensurately, leading to a funding gap and forcing them to borrow from the market.
For the fortnight ending January 13, 2023, credit growth rose 16.5 per cent annualised as against 10.6 per cent growth in deposits.
According to the SBI website, the bank has increased the overnight lending rate, based on the marginal cost of funds-based lending rate, by 10 bps to 7.95 per cent, while the same for one-and three-month maturity has been increased to 8.10 per cent.
For a six-month loan, the bank has been charging 8.30 per cent before the increase which now stands at 8.40 per cent; one-year money that used to come in at 8.40 per cent is costlier by 10 bps now; two-year money is now cost 8.60 per cent, while the three-year money is priced at 8.70 per cent, after the 10 bps upward revision.
As against this, the bank offers the lowest savings bank deposit rate at 2.70 per cent if the amount is less than Rs 10 crore and 3 per cent if the deposit is over Rs 10 crore.
The rate hike won’t affect the retail customers of home and auto loans as they are of long term duration.
Banks price their loans primarily on two metrics now: the external benchmark linked to the repo rate or the open market rate of Mibor and the MCLR or the marginal cost of funds-based lending rate, with all the new loans being priced in the repo-linked rate or the external benchmarked lending rate (EBLR).
The central bank has been pushing banks to become more transparent in their loan pricing since the middle of the last decade.
And since then the loan pricing mechanism has undergone radical changes-from the highly opaque base rate to MCLR and now to the EBLR which can be either linked to the RBI’s repo rate or the Mibor or the Mumbai inter-bank offer rate, which varies from day to based on the demand for overnight funds.
After a slight moderation in growth in the previous fortnight, bank credit growth picked up in the fortnight to January 13 with 16.5 percent annualized growth to Rs 132.81 lakh crore, according to the latest data released by Reserve Bank on January 27.
Credit growth had moderated to 14.9 per cent in the fortnight to December 30, 2022 due to base effect, as bank credit expanded by 9.2 per cent during the same period last year.
But this is lower than the overall credit growth of 18 per cent in October.
Deposit growth gathered pace to 10.6 per cent annualized to Rs 176.74 lakh crore in the fortnight to January 13. In the previous fortnight to December 30, incremental deposit accretion was only 9.2 per cent.