RBI hikes lending rates, outgo for home, auto, and personal loans

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RBI hikes lending rates, outgo for home, auto, and personal loans

The Reserve Bank of India has hiked the benchmark lending rate for home, auto, personal loans, and the monthly outgo for home, auto, and personal loans is set to pinch borrowers again, after the bank hiked the benchmark lending rate for the third time in three months. Most top banks including others will pass on Friday's 50 bps hike to external benchmark linked loans, which is 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. Bank lending rates have gone up in tandem with higher deposit and market rates, according to Shanti Ekambaram, Group President Whole Time Director Designate, Lending rates are likely to go up in response to 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 weighted average lending rate WALR on fresh rupee loans by scheduled commercial banks, 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 SCBs' outstanding loans 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. The gap between credit growth and 14% has widened to more than 500 basis points, as deposit growth has been a little over 8% at the banking system level. The banks will pass the rate hike onto deposit rates, which is the most likely scenario, according to Shaktikanta Das, governor of RBI. The trend has started and quite a few banks have hiked their deposit rates and that trend will continue. The banks can sustain and support that credit offtake only if they have higher deposits when there is a credit offtake. They can't rely on central bank money on a per-month basis to support credit offtake, they need to mobilise their own resources and own funds. In May, the average domestic term deposit rate for 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 hiked the key policy repo rate by 140 bps since May. Even the RBI is tightening system level liquidity in June-July, which is around Rs 3.8 lakh crore in June-July, down from over Rs 6.7 lakh crore in April-May, experts fear that funding challenges for banks could increase if deposit rate growth continues to lag. There is a main issue that we believe is that RBI has hiked CRR, keeping liquidity tight, which is affecting base money growth, said Suresh Ganapathy, associate director, Macquarie Capital. Our feedback from bankers shows that many corporate treasuries prefer parking in liquid funds that offer overnight liquidity at higher rates 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, increasing by a significant 750bps for the fortnight ended July 15, 2022, up from 6.5% in the year-on-year period. Deposits rose by 8.4% y-o-y for the same period. Since October 2021, the Credit to Deposit CD ratio has gone up by 73.1% and has gone up by 365bps y-o-y from the similar fortnight last year.