State Bank of India (SBI) has upped its marginal cost of funds-based lending rate (MCLR) by 20 basis points (bps) across all tenors with effect from August 15. This is the fifth MCLR hike in as many months.

The borrowing cost for India Inc will go up as most corporate loans are linked to MCLR. One basis point is equivalent to one-hundredth of a percentage point.

Since April 2022, India’s largest bank has cumulatively hiked MCLR by 70 basis points. In April, May, and July, SBI had upped the MCLR by 10 bps each, and in June and August the MCLR was increased by 20 bps each.

Following the latest 20 basis points hike, the one-year MCLR is now at 7.70 per cent against 7.50 per cent earlier.

MCLR comprises of: Marginal cost of funds; Negative carry on account of Cash Reserve Ratio; Operating costs; and Tenor premium.

The MCLR increase comes in the wake of SBI increasing domestic retail term deposit and domestic bulk term deposit rates by 15 basis points and 25-100 basis points, respectively, in select maturity buckets with effect from August 13 in the wake of its credit growth outpacing deposit growth.

Domestic advances of India’s largest bank rose 13.66 per cent year-on-year (YoY) as at June-end 2022, while domestic deposits grew at a slower clip at 8.05 per cent YoY.

The public sector bank has upped interest rates on domestic retail term deposits (below Rs 2 crore) in five out of eight maturity buckets (tenors). Among the tenors, the highest interest rate offered is 5.65 per cent on 5 years and up to 10 years tenor.

The bank has increased interest rates on domestic bulk term deposits (Rs 2 crore and above) in seven out of eight tenors. Among the tenors, the highest interest rate hike (of 100 basis points) is on the 2 years to less than 3 years tenor, with the new interest rate being 5.25 per cent (4.25 per cent earlier).

Within domestic bulk term deposits, the highest interest rate offered is 6 per cent (5.25 per cent ) on 1 year to less than 2 years tenor.

Jefferies, in a report, said: “Deposits will see two trends (1) overall growth of around 9 per cent needs to improve to fund credit growth and Government Securities issuances and (2) with reducing system liquidity (from Rs 8-9 lakh crore at a peak to Rs 1-2 lakh crore now), along with a seasonal uptick in credit demand, deposit rates can also rise sharply.

“We see a 50 bps hike in term deposit rates in the coming months, along with a hike in savings deposit rates.”

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