March 20, 2023

Host of lenders led by State Bank of India (SBI) and Bank of India hiked lending rates after the Reserve Bank raised the benchmark interest rate to tame inflation. The hike has been effected in their benchmark rate linked to the repo rate, which increased by half a percentage point to 5.9 per cent.

Even financial institutions like mortgage lender HDFC Ltd hiked the lending rate by 50 basis points effective Saturday. This is the seventh rate increase undertaken by HDFC in the last five months with an aggregate hike of 1.90 per cent in line with the RBI.

SBI raised the external Benchmark based lending rate (EBLR) and Repo-Linked Lending Rate (RLLR) by 50 basis points, as per the information posted on the bank’s website.

SBI’s EBLR rose to 8.55 per cent and RLLR increased by similar 50 basis points to 8.15 per cent, effective Saturday. Banks add Credit Risk Premium (CRP) over the EBLR and RLLR while giving any kind of loan, including housing and auto loans.

With the increase in lending rate, EMIs will go up for those borrowers who have availed loans on EBLR or RLLR.

From October 1, 2019, all banks including SBI have migrated to an interest rate linked to an external benchmark such as RBI’s repo rate or Treasury Bill yield. As a result, monetary policy transmission by banks has gained traction.

Another state-owned lender Bank of India raised its effective RBLR to 8.75 per cent.

The rate increase by the Bank of India was effective from Friday, as per the revised repo rate of 5.9 per cent, the bank website said.

With the repo rate increase, ICICI Bank External Benchmark Lending Rate (I-EBLR) will rise to up to 9.60 per cent.

The private sector bank also revised its fixed deposit rates effective from Friday.

Other banks are also expected to follow suit after the RBI raised the key interest rate by 50 basis points, the fourth straight increase since May. It is just a matter of time when banks would undertake EBLR or RLLR hikes in line with the repo rate.

The Monetary Policy Committee (MPC), comprising three members from the RBI and three external experts, raised the key lending rate or the repo rate to 5.90 per cent — the highest since April 2019 — with five out of the six members voting in favour of the hike.

Since the first unscheduled mid-meeting hike in May, the cumulative increase in the interest rate now stands at 190 basis points and mirrors similar aggressive monetary tightening in major economies around the globe to contain runaway inflation by dampening demand.

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