Comments
The share of bank loans and term deposits bearing ‘over 8 per cent’ and ‘7 per cent & above’ interest rate, respectively, has increased substantially in the last 21 months, reflecting the pass-through of policy rate increases.
The share of bank loans bearing over 8 per cent interest rates increased from 47.2 per cent in March 2022 to 78.9 per cent in March 2023 and further to 83.7 per cent in December 2023, according to RBI’s latest monthly bulletin.
In response to the cumulative increase of 250 basis points (bps) in the policy repo rate since May 2022, the one-year median marginal cost of funds-based lending rate (MCLR) increased by 169 bps during May 2022 to February 2024, RBI officials said in an article “State of the Economy” in the latest bulletin. One basis point equals to one-hundredth of a percentage point.
Consequently, the weighted average lending rate (WALR) on fresh rupee loans increased by 194 bps and that on outstanding rupee loans rose by 113 bps during May 2022 to January 2024.
The monetary policy committee increased the policy repo rate by 250 basis points from 4 per cent to 6.50 per cent between May 2022 and February 2023 to align the retail inflation to the 4 per cent target. The committee has been on hold since February, 2023.
The pass-through to WALRs on fresh rupee loans during May 2022 – January 2024 was higher for public sector banks/PSBs (at 186 bps) than for private banks/PVBs (at 175 bps), while the transmission to WALRs on outstanding rupee loans was higher for PVBs (113 bps) vs PSBs (105 bps).
SFBs: more loans at 13% plus interest
Bank of Baroda’s economic research team assessed that Small Finance Banks (SFBs) have a distinct trait of having 71 per cent of their loans priced at above 13 per cent.
“In fact around 90 per cent of their loans are priced at above 10 per cent. This is what adds to their profitability,” opined BoB economists.
In the case of PSBs, the share of high priced loans carrying 13 per cent plus interest is just 3 per cent, the economists said in a report. Eighty per cent of the loans are priced between 7-11 per cent, while another 12 per cent are priced in the 11-13 per cent range.
In the case of PVBs, 13 per cent of their loans are priced at above 13 per cent while 2/3rd are priced in the 8-11 per cent range.
Foreign banks have a concentration of loans (84 per cent) carrying 7-11 per cent interest rate.
EBLR loans: Full transmission
In the case of loans linked to an external benchmark (repo rate), the 250 bps hike in repo rate has been fully transmitted to the borrowers.
Personal loans and other retail loans, as well as loans to micro, small and medium enterprises have floating interest rates based on EBLR (usually repo rate).
Term deposits
The share of term deposits offering 7 per cent and above interest rates has also increased from 4.5 per cent in March 2022 to 33.5 per cent in March 2023 and further to 61.4 per cent in December 2023, RBI officials said in the bulletin.
This has increased the relative attractiveness of term deposits vis-à-vis savings deposits, they added.
Term deposit rates of more than one year maturity are fetching 6.50/7.25 per cent interest vs savings bank interest of 2.70/3 per cent.
The weighted average domestic term deposit rate (WADTDR) of banks on fresh and outstanding deposits increased by 240 bps and 181 bps, respectively, during the during May 2022 to January 2024 period.
In case of term deposits, PSBs have increased their deposit rates relatively more than PVBs.
The pass-through to WADTDR on fresh deposits during May 2022 – January 2024 was higher for public sector banks/PSBs (at 246 bps) than for private banks/PVBs (at 203 bps). The transmission to WADTDR on outstanding deposits was also higher for PSBs (180 bps) vs PVBs (168 bps).
Meanwhile, CareEdge Ratings, in a report, said banks’ credit offtake continued to grow, increasing by 20.5 per cent year-on-year (y-o-y) to reach ₹162.1 lakh crore, for the fortnight ending February 23, 2024.
“This rise can continue to be attributed to the impact of HDFC’s merger with HDFC Bank along with the growth in personal loans.
“If we exclude the impact of the merger, credit grew at 16.5 per cent y-o-y for the fortnight compared to last year’s growth of 15.5 per cent. Meanwhile, the outlook for bank credit offtake continues to remain positive,” per the report put together by Sanjay Agarwal, Senior Director; Saurabh Bhalerao, Associate Director; and Tejas Poojary Lead Analyst.
The agency noted that deposits too grew by 13.1 per cent y-o-y for the fortnight (including the merger impact) and reached ₹202 lakh crore as on February 23, 2024, driven by growth in time deposits. Excluding the merger impact, growth stood at 12.5 per cent. Sequentially, it remained flat.
The agency assessed that deposit growth is expected to improve compared to earlier periods as banks look to shore up their liability franchise and ensure that deposit growth does not constrain credit offtake.
ends
Comments
COMMENT NOW
