Sign in Subscribe
Banks (Finance)

RBI's Repo Rate Hike Triggers Bank Lending Rate Increases

Strategic Insights

— 2 min read

The Reserve Bank of India's recent 50 basis point hike in the repo rate to 4.9 per cent has led to a chain reaction, with several banks raising their repo-linked lending rates (RLLR) in response. ICICI Bank, Bank of Baroda, Punjab National Bank, HDFC, Bank of India, and RBL Bank have all increased their RLLRs, with the changes set to impact equated monthly instalments (EMIs) on various loans. As the banks adjust to the rising cost of funds, there are expectations of further repo rate hikes and subsequent increases in lending rates.

Key Takeaways:

  • The RBI's 50 basis point repo rate hike to 4.9 per cent has prompted banks to raise their RLLR, with ICICI Bank increasing its RLLR by 50 basis points to 8.6 per cent, effective immediately.
  • Bank of Baroda, Punjab National Bank, HDFC, and Bank of India have also raised their RLLR by 50 basis points, with RBL Bank increasing its RLLR by 50 basis points to 10 per cent, effective June 8.
  • HDFC Bank had increased its marginal cost of funds-based lending rate (MCLR) on loans across all tenures by 35 basis points on May 7, and by 25 basis points earlier.
  • The RLLR changes will lead to an increase in EMIs on home, vehicle, and other personal and corporate loans, potentially damaging cash flows for borrowers.
  • Analysts expect another repo rate hike in the August monetary policy review.
  • As of December 2021, MCLR-linked loans had the largest share (53.1 per cent) of the loan portfolio of banks, while EBLR loans accounted for 39.2 per cent of total advances.

Statistics:

  • 50 basis points: Increase in repo rate announced by RBI
  • 8.6 per cent: New RLLR for ICICI Bank
  • 7.4 per cent: New RLLR for Bank of Baroda and Punjab National Bank
  • 10 per cent: New RLLR for RBL Bank
  • 35 bps: Increase in HDFC Bank's MCLR on May 7
  • 25 bps: Previous increase in HDFC Bank's MCLR
  • 4.4 per cent: Previous repo rate before the last increase
  • 4.5 per cent: Previous cash reserve ratio (CRR)
  • 53.1 per cent: Share of MCLR-linked loans in total advances as of December 2021
  • 39.2 per cent: Share of EBLR loans in total advances as of December 2021

Sources:

  • "RBI hikes repo rate by 50 bps to 4.9% to tame inflation" by ens economic bureau, published on Contify.com
  • RBI circular dated October 2019 on adoption of external benchmark lending rates (EBLR)
  • RBI data on loan portfolio composition as of December 2021

Read more