Some banks have raised interest rates on time deposits by 10 to 25 basis points for certain maturities.
Bank deposit rates are catching up with lending rates after the Reserve Bank of India (RBI) raised repo rates by 50 basis points (bp) and credit growth outpaced deposit receipts.
Several banks, including YES Bank, Indian Overseas Bank, Bank of India, Canara Bank, Jammu, Kashmir Bank, Kotak Bank, and Ujjivan Small Finance Bank, have raised their fixed deposit interest rates following the announcement of the RBI interest rate on 10/25/10 I . ‘m here. For some barrels, the maturity decreased by 50 bp.
Other lenders such as IndusInd Bank, Bandhan Bank, and ESAF Small Finance Bank have slashed interest rates on savings accounts, while ICICI Bank has raised interest rates on large deposits of over INR 20 million.
sit on extra money
Karthik Srinivasan, head of financial sector ratings at ICRA Group, said banks still have excess liquidity that they can use to make more loans.
If loans continue to outpace deposits and the liquidity gap narrows significantly, he said, deposit rates will rise sharply.
Ethira Davis, CEO, and CEO of Ojivan Small said: “Financial banks. If the repayment rates continue to rise, we will see an increase in deposit rates. “
So far, banks have passed the rate hikes entirely on individual and small business borrowers because their loans are pegged to external loan reference rates (EBLR). In addition, the loan rate is MCLR (based on Marginal Cost Pool). Credit (false rate). However, the payment transfer will be delayed.
The central bank began a rate hike cycle in May, raising interest rates by 40 basis points and then another 50 basis points in June. Repo rates rose to 5.4% last Friday, up 140 basis points in total.
The fact that weighted average lending rates on new bank loans increased by 43 basis points and non-performing loans increased by 21 basis points from May to June suggests that growth in deposit rates has lagged behind active rates. The annual average MCLR also increased by 15 basis points. However, according to the latest data from the Reserve Bank of India, interest rates on time deposits rose by only 10 basis points.
Some lenders such as the State Bank of India, the Punjab National Bank, and Baroda Bank started raising FD rates in July, but the rate hikes were significantly lower than the loan rate hikes.
After the policy meeting, RBI Governor Shakkanta Das said banks are likely to pass on the impact of the rate hike to savers, which will help improve demand for loans.
This trend will continue. This is because banks can only sustain and maintain loans if deposits increase. They cannot rely on central bank resources to continue borrowing with long-term support. They must mobilize resources. Das said.
RBI increases – Incredible RBI by 40 basis points.
The Reserve Bank of India (RBI) surprised many by raising the repo rate by 40 basis points on May 4 to 4.40 percent, effective immediately. The cash reserve ratio (CRR) also increased by 50 points to 4.50% on May 21.
“At the MPC, we showed that we are not bound by a set of rules and that we adapt to changing circumstances,” Das said.
With inflation soaring and expectations high, raising interest rates by 25 to 50 basis points could dampen sentiment for a while as it hurts investor savings and lags investment cycles, but could benefit banks and other long-term banks. Financials will improve margins and growth in the next quarter.
Many experts believe that the rate hike will harm the market in the short term. We have collected the opinions of many experts. Check:
Senior advisor and managing director of Julius Bär India, Unmesh Kulkarni
The RBI’s decision reflects its commitment to fighting inflation, which is consistently high and at the top of the RBI’s comfort zone. Given expectations of a 50 basis point Fed rate hike, the RBI could outpace the Fed in securing currency stability and capital flows.
The increase in CRR is another step in the RBI’s efforts to normalize liquidity to curb persistently high inflation.
The RBI is doing its best to provide sufficient liquidity, but the monetary policy appears to have changed from neutral to accommodative, which could be officially announced at the MPC meeting in June.
With the Treasury update schedule this year, the RBI faces the difficult task of managing market expectations for returns and running weekly auctions without interruption.
RBI’s surprise rate hike has boomeranged on policy easing
Interest rates are expected to be raised in June, but the central bank believes that the inflation situation is too critical to take such action.
The Reserve Bank of India (RBI) surprised the market by raising the repo rate by 40 basis points (bps), which is in the range of 25-50 basis points, and hence this worrying figure gave the number 25 being the law. unrest. . . . . This was surprising, as only one major CPI figure fell between the previous forecast in March and today. However, supply disruptions due to the war in Ukraine continue to affect the prices of many commodities.
How the RBI Rate Affects Stock Market Rise
Read the new headline – Jerome Powell will do anything to kill inflation, even if it means a recession.
US Federal Reserve Chairman Jerome Powell has not hesitated to suggest rate hikes in the coming months.
Last week, the Fed raised rates by 75 basis points for the second straight month, and Powell said the move could be repeated.
At the September meeting, he speculated on a 50-point hike.
What happens in India if interest rates rise in the US?
What does the Reserve Bank of India (RBI) do when the inflation bell rings? Yes, if India’s inflation data rises, the RBI could raise interest rates.
The RBI is expected to follow suit, as the US Federal Reserve (Fed) officially says it is unlikely to postpone rate hikes until there is evidence to keep inflation down.
This was done by RBI Governor Shaktikanta Das. The RBI has raised its repo rate by 90 basis points from May 2022, including a 0.5 percentage point increase in June 2022.
Again this week the RBI will hold its MPC meeting from August 3rd to 5th and the rate hike decision will be announced today. Everyone knew the rate hike was possible.
As expected, the RBI raised the repo rate by 50 bps to 5.40%. The current repo rate is 5.15% higher than the pre-pandemic rate.
The rate at which the RBI loans banks short-term funds is known as the repo rate.
The RBI governor said he had decided to focus on keeping inflation on target at home while supporting growth.
He noted that financial markets remain volatile despite minor adjustments, but India is expected to become one of the fastest-growing economies in the world.
For the stock market, this meeting is more than just a quarterly or monthly accounting exercise. This is an important event.
If the market looks positive about his RBI decision, the stock market will rise, at least in the short term. All correction comments are ignored.
But if the market is not satisfied with the results and guidance are given in his Shaktikanta Das speech, then blood will flow on Dalal Street, whatever it is.
For better understanding, let’s discuss the impact of higher repo rates on the stock market.
growing interest
The first thing that happens after the repo rate goes up is interest rates start going up. Last month, central banks around the world voted in favor of rate hikes.
Higher repo rates mean higher EMI for new loans and longer tenors for existing variable rate loans. As repo rates rise, banks’ borrowing costs also rise, which is passed on to borrowers through lending and deposit rates.
As a result, corporate debt levels are also high. If interest rates rise, we will see an immediate impact on mortgages and EMI. Banks have lending rates linked to the RBI repo rate.