India's Major Banks Raise Lending and Deposit Rates Amid Increase in Cost of Funds

Strategic Insights -

Major Indian banks, including State Bank of India, ICICI Bank, and HDFC Bank, have increased their lending and deposit rates due to a sharp rise in the cost of funds. The move, aimed at ensuring better returns for depositors, will make auto, home, and commercial loans more expensive for residents and non-residents alike. India's largest lender, SBI, has raised its base rate by 40 basis points (bps) to eight percent from Saturday, with fixed deposits offering higher interest rates.

Key Takeaways:

  • SBI has raised its base rate by 40bps to 8% from Saturday, affecting lending rates for auto, home, and commercial loans.
  • ICICI Bank has revised its base rate by 50bps to 8.25% effective from Monday.
  • Private lenders Kotak Mahindra Bank and Dhanlaxmi Bank have increased their base rates by 25bps and 75bps, respectively.
  • HDFC Bank has increased its base rate by 25bps to 7.75%, while Corporation Bank has raised its base rate by 65bps and deposit rates across maturities by between 10bps and 125bps.
  • Most banks raised retail deposit rates by 50-150bps in December, and short-term rates have also moved up.
  • The interest rate on three-month certificates of deposit has increased by 250bps since October.
  • The base rate, introduced in 2010, is reviewed every quarter, with most government-owned banks revising it in December by around 50bps each.
  • India's central bank, the Reserve Bank of India, is formulating guidelines to plug a regulatory gap permitting surrogate raising of deposits by non-banking financial companies (NBFCs).

Statistics:

  • 40 basis points: Increase in SBI's base rate to 8%
  • 50bps: Revision in ICICI Bank's base rate to 8.25%
  • 25bps: Increase in base rates for Kotak Mahindra Bank and Dhanlaxmi Bank
  • 75bps: Increase in base rate for Dhanlaxmi Bank
  • 65bps: Increase in base rate for Corporation Bank
  • 50-150bps: Increase in retail deposit rates by most banks in December
  • 250bps: Increase in interest rate on three-month certificates of deposit since October
  • 2010: Year when the base rate was introduced

Sources:

  • Arab News, (no date specified)
  • Reserve Bank of India's Second Financial Stability Report (no specific date mentioned)