A month after raising its base rate by 25 basis points,private sector lender Axis Bank has again hinted at increasing the lending rates. Blaming the higher cost of deposits,the bank claims a reassesment of the lending rates might be essential.
The MSF rate,now at 9.5%,is the key rate that determines banks cost of funds. This level is higher than what was prevailing prior to policy measures that started on July 15. Deposit repricing over the next couple of months can put some upward pressure on banks overall cost of funds. The lending rates will have to take this into account and be calibrated accordingly, said V Srinivasan,the executive director,Axis Bank.
Liquidity tightening measures by Reserve Bank of India (RBI) had caused Axis Bank to raise base rate to 10.25% from 10% on August 20. Last week,in its monetary policy announcement,the banking regulator raised repo rate by 25 bps to 7.5%,while cutting MSF by 75 bps to 9.5% and the daily cash reserve ratio (CRR) requirement to 95% from the earlier requirement of 99%.
Earlier,RBI had raised MSF by 200 bps to 10.25% and limited bank borrowing through liquidity adjustment facility (LAF) window to 0.5% of the individual banks net demand and time liabilities (NDTL).
The move had ensured banks struggled with the increasing cost of deposits and were forced to reconsider their base rates.
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In last one month,private sector lenders like ICICI Bank and HDFC Bank had raised base rates to 10% and 9.8% respectively. On Thursday,State Bank of India (SBI) had raised base rate by 10 bps to 9.8%.
According to experts,after the recent monetary policy announced by new Governor Raghuram Rajan,public sector banks may also be forced to review their lending rates,since cost of funds have risen considerably.
The banking system has seen a significant rise in credit growth,fortnightly data by RBI show. Non-food credit grew at the fastest pace in over a year at 18.40% year-on-year to Rs 55,11,822 crore for the fortnight ended on September 6.
Credit growth has been steadily rising over the last three fortnights and has stayed above 16% as the liquidity crunch in the market pushed companies to borrow funds from the banks instead of raising funds through non-convertible debentures (NCD) and commercial paper (CP),bankers had said.