Loans to become more expensive as lenders raise their interest rates

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As banks raise their loan interest rates, car loans, personal loans and home loans will cost more. On Thursday, loan rates were raised by up to 25 basis points by two state-run lenders of the country – Punjab National Bank (PNB) and State Bank of India (SBI).

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As banks raise their lending rates, car loans, personal loans and home loans will cost more.

PNB, the second largest public sector bank, increased its lending rate by 15 basis points to 8.30%. The bank also raised the overnight, 1-month, 3-month, and 6-month lending rates by 15 basis points. The current rates now stand at 7.80%, 7.95%, 8.10% and 8.25% respectively.

SBI’s 1-year MCLR was bumped up by 20 basis points, making the current rate 8.15%. SBI increased its 6-month MCLR by 10 basis points making the current rate 8%. The 3-year lending rate saw the highest increase of 25 basis points making the current rate 8.35%.

The present repo rate from the Reserve Bank of India (RBI) is 5.75%. Though the central bank has been accommodating and maintained a neutral stance since January 2015, the two banks increased the MCLR (marginal cost of fund-based lending rate). SBI defended its position stating that in the past month, the liquidity of the bank has become neutral or may even cross over into a deficit, though previously it was in surplus. There has also been a demand for credit in the market, higher than usual, with the quarterly loan demand crossing double digits, settling at close to 11% between October to December 2017. This growth rate was at a low single digit for many years.

In addition, bond yields have increased by 125-150 points over the course of the past few months. Therefore, there was a need to realign the rates to tackle the liquidity situation.

Despite an increased lending rate, SBI still offers a marginally lower rate compared to other banks. SBI and PNB also increased the interest rates offered on deposits. Deposits maturing within 1 year and up to less than 2 years will see an increase of 0.15%, making the current rate 6.40%. For customers making retail deposits not exceeding Rs.1 crore, the bank bumped up the interest rate offered by up to 0.50 basis points. Overall, for bulk and retail term deposits, State Bank of India increased the basis points by up to 75 across multiple maturity terms.

PNB boosted interest rates on bulk and retail term deposits by up to 45 basis points. For bulk deposits of 1 year maturity, the interest rate has changed from 6.50% to 6.75%. Retail deposits maturing in 1 year and up to 3 years will see an increase by 25 basis points, making the interest rate 6.75%.

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