Move to shore up liquidity; banks not keen on hiking lending rates.
The latest policy rate hike by the Reserve Bank of India (RBI) has led to hardening of interest rates — but wait, that’s more on the deposits side rather than lending, thankfully. As many as eight banks raised retail deposit rates in the past week.
While banks have tweaked rates across various maturities, most upward revisions have been seen on the shorter tenures in the category of deposits below Rs 1 crore. Banks, including the State Bank of India (SBI), Axis Bank, Punjab National Bank (PNB) and Union Bank of India, have raised deposit rates by up to 100 basis points. Canara Bank, Karnataka Bank, Allahabad Bank and Oriental Bank of Commerce have also hopped onto the bandwagon.
The central bank on October 29 increased key policy rate by 25 basis points to 7.75% in order to combat rising inflationary pressures. The rate hike was coupled with reduction of an equal amount in the marginal standing facility (MSF) rate, which now stands at 8.75%.
In a week after the twin policy action, overnight call money rates have eased marginally. Banks are still borrowing around Rs 40,000 crore daily on an average from RBI’s repo and MSF windows as against Rs 52,400 crore prior to the policy action, reflecting that liquidity conditions have also loosened up a bit. “Some banks are also shedding bulk deposits to a great extent. Making retail deposits more lucrative will only offset the move,” said a senior official with a large public sector bank.
But Rajan said in the policy review that banks will need to take extra efforts to ramp up deposit base. On the other hand, banks are not too keen on raising lending rates. So far, only SBI and HDFC Bank increased their base rates by 20 basis points each. “Others cannot think of increasing lending rates in such conditions. We could lose market share,” said another senior banker.
According to the latest data from the RBI, both credit and deposit growths continue to remain subdued.
Credit clip was at 16.6% while deposit growth rate stood at 14.4% as on October 18.
Rate dilemma
Banks including the State Bank of India, Axis Bank, Punjab National Bank and Union Bank of India, have raised deposit rates by up to 100 basis points.
However, they fear losing market share if lending rates are hiked. So far, only SBI and HDFC Bank increased their base rates by 20 basis points each.
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