Public sector banks, including Bank of Baroda (BoB), Canara Bank, and UCO Bank, have announced an increase in their marginal cost of fund-based lending rate (MCLR) following the Reserve Bank of India’s (RBI) recent monetary policy statement. The rate hikes, effective from mid-August, come in response to rising deposit costs and ongoing transmission of earlier repo rate hikes.
Starting August 12, BoB and Canara Bank will raise their loan rates by 5 basis points for six-month and one-year tenures, bringing their revised MCLRs to 8.75% and 8.95% for BoB, and 8.80% and 9.00% for Canara Bank, respectively. UCO Bank has also increased its lending rates by 5 basis points, effective from August 10, with its six-month and one-year MCLRs now at 8.80% and 8.95%, respectively.
The MCLR is the minimum rate that banks offer to corporate loan customers, heavily influenced by the cost of deposits. The recent adjustments follow a broader trend of MCLR hikes across the banking sector, both public and private, as banks grapple with higher deposit costs.
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Earlier, State Bank of India had raised its MCLR by 5 to 10 basis points across various tenures, while Bank of India and Indian Bank had also announced similar hikes in their MCLR rates for August. This trend is seen as a reflection of the increased cost of funds for banks, which has been rising steadily since the RBI’s rate-tightening cycle began in May 2022.
RBI’s data indicates that scheduled commercial banks have adjusted their repo-linked external benchmark-based lending rates (EBLRs) upwards in response to the cumulative 250 basis points policy rate hike since May 2022. As a result, the weighted average lending rates (WALRs) on fresh and outstanding rupee loans have also increased significantly.
The recent MCLR hikes underscore the ongoing challenges for banks in managing their cost of funds amid a competitive environment for deposits, with potential implications for borrowers as lending rates continue to rise.
