In the third time in three months, the Reserve Bank of India hiked the benchmark lending rate again, and the increase in monthly outgo for home, auto and personal loans is going to pinch borrowers. Most top banks including others will automatically pass on Friday's 50 bps hike to external benchmark linked loans, used largely for pricing retail loans. More than half of the banking system's loans are linked to external benchmarks. Since May this year, the RBI has increased the repo rate by 140 bps. Shanti Ekambaram, Group President Whole Time Director Designate, said lending rates have gone up as a result of the hike in deposit and market rates and that lending rates are likely to go up as a result of today's rate hike. Existing borrowers linked to repo rates will see higher outgo as rates get transmitted. Consumption demand has been stable so far despite rate hikes in homes, cars, consumer durables, travel, etc. Some segments could see an impact on demand as rates go higher. The average lending rate on fresh rupee loans of scheduled commercial banks, which increased by 34 basis points one bps from April to 7.86% in May, rose another 8 bps to 7.94% in June. WALR on outstanding rupee loans of SCBs increased by 7 bps to 8.79% in May and by 14 bps to 8.93% in June 2022. On Friday, RBI Governor Shaktikanta Das nudged banks towards hiking deposit rates and said banks shouldn't rely on central bank money to fund credit growth. At the banking system level, deposit growth has widened to more than 500 basis points and the gap with credit growth is growing at 14%. The bank's deposit rates will likely be affected by the rate hike, according to Shaktikanta Das, governor of RBI. The trend has started, a number of banks have hiked deposit rates and that trend will continue. If there is a credit offtake, the banks can sustain and support that credit offtake only if they have higher deposits. They cannot rely on central bank money on a continuous basis to support credit offtake, they have to mobilise their own resources and own funds. In May, the weighted average domestic term deposit rate on outstanding rupee term deposits of banks increased by 4 bps to 5.07% and by 6 bps to 5.13% in June 2022, according to RBI data. The RBI has already hiked the key policy repo rate by 140 bps since May. Even the RBI is tightening system level liquidity which is around Rs 3.8 lakh crore in June-July, down from Rs 6.7 lakh crore in April-May, experts fear that funding challenges for banks could increase if deposit rate growth continues to lag. The main issue we believe is that RBI has hiked CRR, keeping liquidity tight, which is affecting base money growth, said Suresh Ganapathy, associate director, Macquarie Capital. Bankers have stated that many corporate treasuries prefer parking in liquid funds that offer higher overnight liquidity rather than park a 7 day deposit with a bank at lower rates. You can also withdraw anytime instead of lock-in for 7 days with banks if you get say 25 -- 50 bps higher rates on your money. Bank credit was up from 6.5% in the year-ago period, growing by 14% year-on-year, expanding by 750bps for the fortnight ended July 15, 2022. For the same period deposits had a growth of 8.4% y-o-y. The Credit to Deposit CD ratio, increasing since October 2021, stood at 73.1%, expanding by 365 bps y-o-y from the similar fortnight last year.