Fresh lending rates for scheduled commercial banks (SCBs) increased by 15 basis points (bps) to 9.9% in January, largely driven by a 20 bps hike in lending rates by private sector banks, according to the Reserve Bank of India s (RBI) data for system-wide average lending and deposit rates for January. For instance, HDFC bank hiked its one-year marginal cost of funds-based lending rate (MCLR) rate below which a bank cannot lend by 5 bps to 8.75% in January. Again, in January, IndusInd Bank hiked its one-year MCLR by 10 bps to 9.9%. The average MCLR for SCBs in January was higher by 5 bps m-o-m at 8.8% in January.
The rise in fresh lending rates was further driven by robust growth in lending to non-banking financial companies (NBFCs), up by 50% y-o-y in January and growth in unsecured retail loans. The gradual rise in yields has led to a situation where the spread between bank funding and bond rates have gradually started to converge, analysts at KIE said.
As per data published by RBI, term-deposit rates in January at 6.91% was the highest since April 2017. Term-deposit rates for SCBs have seen an increase of close to 20 bps from July, 2018 to January this year. Rakesh Jha, chief financial officer (CFO), ICICI Bank, told analysts after the bank s Q3FY19 results, that they see a strong term-deposit growth amid falling current account deposits.
The fact is that when interest rates go up as they have gone up currently, the growth, especially on the savings deposits and to the extent on the current account deposits, slows down because people would put more money into fixed deposits and we have also seen a similar trend. We will see a high growth on the term deposits. Jairam Sridharan, CFO, Axis Bank, during the bank s Q3FY19 results, said: With respect to interest rates on deposits, we have been shifting our strategy a little bit to say that the retail term deposits need to play an increasingly active part of our overall deposit strategy.
The gap between weighted average lending rates and fresh lending rates narrowed from peak values of 85-95 bps in Q3FY19 to 50 bps in January. Increase in fresh lending rates is unlikely from here onwards as most companies focus on higher share of low-yielding retail products and lending to better rated corporates, says a Kotak Institutional Equities report.