RBI Repo Rate Hike Impact: These Banks Increased Interest Rates on Deposits & Lending

Following the Reserve Bank of India's (RBI) 40-basis-point hike in the repo rate, the banking sector followed suit by raising interest rates on lending and deposit plans. Major banks such as ICICI Bank, PNB, and Bank of Baroda, as well as small financing banks, have all jumped on board the bandwagon of increasing lending and deposit rates.

In general, raising the repo rate makes borrowing more expensive and saving more appealing. Both lending and deposit interest rates are affected by changes in the policy repo rate. In the case of a higher repo rate, banks' cost of funds rises, resulting in increased interest rates on home loans, vehicle loans, and personal loans, which are passed on to you when you pay your monthly instalments (EMIs) back to the lender.

Depositors, on the other hand, are in a different situation. A rate hike allows banks to raise deposit interest rates, making fixed deposits and savings accounts more appealing places for customers to put their money and earn income.

Anjana Potti, Partner, J Sagar Associates (JSA), said after the RBI's unexpected rate hike, "All markets are being weighed down by the geopolitical crisis created by Russia's invasion of Ukraine. Market players around the world are keeping an eye on the US Federal Reserve, which is expected to announce a rate hike later tonight. Many countries' central banks are hiking interest rates to combat inflation. During the pandemic, these borrowing costs have dropped to record lows, boosting growth."

Following this trend, the RBI raised its repo rate from 4.00 percent to 4.40 percent, which the JSA Partner predicts will have a significant influence on the market, including:

Short-term deposits — in response to any change in the interest rate cycle, short and mid-term rates always rise first.

Interest rates for new borrowers are likely to be higher than for existing borrowers. Existing borrowers who have floating interest rates will be affected as well.

After the RBI's repo rate hike, the following banks increased their interest rates on lending benchmarks, fixed deposits, and savings.

ICICI Bank            

ICICI Bank increased its external benchmark lending rate with effect from May 4, 2022, on the same day that the RBI startled markets by raising the repo rate by 40 basis points to 4.4 percent.

"ICICI Bank External Benchmark Lending Rate" (I-EBLR) is a reference to RBI Policy Repo Rate with a mark-up over Repo Rate, according to the company's website. Effective May 4, 2022, the I-EBLR is 8.10 percent p.a.p.m."

Punjab National Bank

The repo-linked lending rate (RLLR) of PNB has been raised by 40 basis points. The new RLLR, however, will take effect for existing customers on June 1, 2022, and for new customers on May 7, 2022.

PNB stated in its regulatory filing: "For current customers, the Repo Linked Lending Rate (RLLR) has been increased from 6.50 percent to 6.90 percent as of June 1, 2022. The amended RLLR will take effect on 07.05.2022, for new customers."

Bank of Baroda

From May 5, 2022, interest rates on different loans connected to Baroda's repo-linked lending rate (BRLLR) have been raised.

According to the bank's website, the appropriate BRLLR for retail loans is 6.90 percent, which is a mix of the current repo rate of 4.40 percent plus a mark-up of 2.50 percent and a spread of 0.25 percent.

HDFC Bank

With effect from May 9, 2022, the major housing financing company HDFC has increased its Retail Prime Lending Rate (RPLR) on Housing loans, on which its Adjustable-Rate Home Loans (ARHL) are benchmarked, by 30 basis points.

Kotak Mahindra Bank

With effect from May 6, this private sector bank increased its fixed deposit rates for retail clients with balances under 2 crores across all tenures.

The interest rate on the popular 390-day (12 months and 25 days) deposit has been increased by 30 basis points to 5.5 percent, while the rate on the 23-month deposit has been increased by 35 basis points to 5.6 percent. 

Other bank deposits, such as the 364-day deposit, now offer 5.25 percent, and the 365-day – 389-day deposit now offers 5.4 percent, according to the amended rates. Customers who are 60 years or older will receive an additional 50 basis points on these rates.