Day after repo fee hike: Massive banks elevate charges

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A day after the Reserve Financial institution of India (RBI) raised the repo fee, Bank of Baroda (BoB) and ICICI Bank hiked their exterior benchmark-linked lending charges (EBLRs) by 40 foundation factors (bps) every.

BoB’s new repo linked lending fee is 6.9%, whereas ICICI Financial institution’s EBLR stands at 8.1%. Different main banks’ web sites are but to mirror their up to date EBLRs. Kotak Mahindra Bank raised charges by as much as 35 bps on retail deposits in some tenor buckets.

The repo fee hike has come as a aid for banks who had been unable to lift charges for a portion of their books as they’re linked to the repo fee. Spreads, too, can change solely with a change within the danger profile of the borrower.

In keeping with information from the Reserve Financial institution of India (RBI), the proportion of floating fee loans linked to exterior benchmarks stood at 39.2% in December 2021. Sixty 9 p.c of loans to micro, small and medium enterprises (MSMEs) and 58% of housing loans had been linked to exterior benchmarks as of December 2021.

Banking sector analysts mentioned the coverage fee hike is a constructive for banks, although it’s not instantly clear how a lot it should assist their margins, after accounting for the 50-bps hike within the money reserve ratio (CRR).

Whereas lending yields will rise because of the repo hike, the rise in CRR may have an hostile influence of three bps on margins for the banking system and can partially offset the advance in margins, analysts at Motilal Oswal Financial Services mentioned.

Kotak Institutional Equities mentioned in a report that within the present surroundings, credit score prices are benign and mortgage development continues to be nicely under long-term tendencies. “On this surroundings, whereas the hike in repo charges offers a tailwind to NIM (internet curiosity margin) outlook, we’d wish to be cautious and consider {that a} aggressive surroundings would possible hold NIM steady or maybe present strain downwards.”

The brokerage believes public sector banks have higher headroom to handle NIM strain as they’re rising at a slower tempo, have wholesome CASA ratios and low credit-deposit (CD) ratios.

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