10 bps hike! Signalling an uptrend, HDFC Bank raises MCLR

In a definite indication loans are turning costlier, HDFC Bank on Wednesday raised the marginal cost of funds-based lending rate (MCLR) by 10 basis points for some tenures. The one-year MCLR was raised to 8.2% and matches that at ICICI Bank. However, State Bank of India (SBI) charges a lower 7.95%. Axis Bank, which last month became the first large lender to raise its MCLRs since the pricing mechanism came into effect on April 1, 2016, charges 8.3%. At HDFC Bank, the six-month, two-year and three-year MCLRs are now 8%, 8.3% and 8.5%, respectively. With yields in the bond market rising nearly 100 basis points in the last few months, banks have found it more expensive to issue certificates of deposit (CDs). At the same time, the higher cost of borrowing from the markets may have nudged some corporates to return to banks, allowing the latter some headroom to raise rates. Paresh Sukthankar, deputy managing director at HDFC Bank, had said last month after the bank’s third-quarter results that interest rates were set for a rise.

“Given, in particular, liquidity conditions and the fact that even at the system level loan growth for the first time now is outpacing deposit growth quite sharply, I think if anything, either rates will be in for a bit of a pause or if these liquidity conditions remain the way they are, there could be some upward pressure on both the deposit and lending rates,” he had said. Banks began by raising their bulk deposit rates, with SBI making the first move in November 2017. Between November 29 and January 30, the rate on one-year deposits of over Rs 1 crore at SBI has jumped by 200 basis points to 6.25%.

However, SBI has not reviewed retail deposit rates and has said that the rate hikes on bulk deposits do not affect its cost of funds. “We have aligned bulk deposit rates with retail deposit rates and the hike will not impact the cost of funds in a significant manner,” PK Gupta, managing director, SBI, told a television channel last month. SBI is yet to raise its MCLR; it actually reduced the base rate by 30 basis points at the beginning of 2018. On Monday, Bank of Baroda reduced MCLRs for tenures under one year by 10-25 basis points.

HDFC Bank