Generally speaking, a rise in the repo rate makes borrowing more expensive and saving more attractive. Changes in the key repo rate have a significant impact on interest rates on loans and on deposits. While in a higher repo rate scenario, the cost of funds increases for banks – leading to higher interest rates for home loans, car loans and personal loans – which in turn hits your pockets when you pay your monthly installments (EMI) back to the lender.
However, the case is different for applicants. A rate hike gives banks the opportunity to raise interest rates on deposits and thus make term deposits and savings accounts attractive for customers to park their money and earn additional income from.
After RBI’s surprise rate hike, Anjana Potti, Partner, J Sagar Associates (JSA) said: “The geopolitical situation caused by Russia’s invasion of Ukraine is weighing on all markets. Market watchers around the world have their eyes on the US Federal Reserve which is likely to announce a decision to raise rates later tonight. Central banks in many countries are raising rates to counter the effects of inflation. Those borrowing costs had fallen to record lows during the pandemic to support growth.
Following this trend, the RBI has increased its repo rate from 4.00% to 4.40% and, according to partner JSA, this is expected to have a significant impact on the market, including:
1. Short-term deposits – short-term and medium-term rates always rise faster in response to any change in the interest rate cycle.
2. Retail borrowing: Interest rates are likely to be higher for new borrowers. Existing borrowers with floating interest rates will also be affected.
Here is a list of banks that raised interest rates on benchmark loans, fixed deposits or savings after RBI’s repo rate hike.
1. ICICI Bank:
On the same day, when RBI surprised the markets by raising the repo rate by 40 basis points to 4.4%, ICICI Bank also changed its benchmark external lending rate with effect from May 4, 2022.
It stated on its website, “ICICI Bank External Benchmark Lending Rate” (I-EBLR) is referenced to the RBI policy repo rate with a markup over the repo rate. I-EBLR is 8.10% papm as of May 4, 2022.”
2. National Bank of Punjab:
PNB raised its repo-linked lending rate (RLLR) by 40 basis points. However, the new RLLR will come into effect for existing customers on June 1, while for new customers it has changed from May 7, 2022.
In its regulatory filing, PNB stated that “the repo-linked lending rate (RLLR) increased from 6.50% to 6.90% from 01.06.2022 for existing customers. For new customers, the RLLR revised will come into effect from 07.05.2022”.
3. Bank of Baroda:
Interest rates on various loans linked to the Baroda Repo Linked Lending Rate (BRLLR) have been raised from May 5, 2022.
The bank has indicated on its website that for retail loans, the applicable BRLLR is 6.90%, which is a combination of the current repo rate of 4.40% plus a mark-up of 2.50% and the addition of a difference of 0.25%.
“For retail loans, the applicable BRLLR is 6.90% since 05.05.2022 (current RBI repo rate: 4.40% + 2.50% mark-up), SP0.25%,” a the bank said on its website.
4. HDFC Bank:
Leading housing finance provider HDFC has raised its Retail Prime Rate (RPLR) on home loans, against which its Adjustable Rate Home Loans (ARHL) are benchmarked, by 30 basis points, effective May 9, 2022.
5. Indian Bank:
Indian Bank announced on Saturday that it has revised the lending rate for all loans/advances linked to the policy repo rate and revised the lending rate linked to the repo-based policy repo rate. from 4.00% to 4.40%.
That said, the bank has revised the lending rate for new customers with effect from May 9, while existing customers will see the revision from June 1.
6. Kotak Mahindra Bank:
This private sector bank has increased its fixed deposit rates through mandates for retail customers on their deposits below ₹2 crore as of May 6.
Now the interest rate on the popular 390-day deposit (12 months and 25 days) has been increased by 30 basis points to 5.5% and that on the 23-month deposit by 35 basis points to 5, 6%. Under the revised rates, the bank’s other deposits, such as the 364-day deposit now offer 5.25% and the 365-389 day deposit offers 5.4%. Senior customers, i.e. those aged 60 and over, will benefit from an additional 50 basis points on these rates.
7. Bandhan Bank:
Bandhan Bank raises interest rates on FDs below ₹2 crore in one to two year tenure of 50 basis points. These tariffs came into effect on May 4.
The bank raised its FD rates to 5.75% from 5.25% previously – a rise of 50 basis points – on terms of 1 year to 18 months, and more than 18 months to less than 2 years. Seniors earn 6.50% rate.
The remaining rates are unchanged.
8. Jana Small Finance Bank:
The small financial bank has revised its FD interest rates by 25 basis points with effect from May 5. Now a regular FD below ₹2 crore offers a rate of 6.50% on terms of 1 year to less than 2 years, while a senior enjoys a rate of 7.30% on the same terms.
The bank offers a rate of 6.75% and an interest rate of 7% for mandates greater than ₹years to 3 years, and more than 3 years to less than 5 years. Seniors benefit from 7.55% and 7.80% on these two tenures. While the bank offers a rate of 6.75% on 5-year FD to the general category, seniors earn a rate of 7.55%. For terms over 5 years to 10 terms, a regular FD has a rate of 6% and seniors get 6.80%.
9. Union Bank of India:
The public bank, however, increased the interest rates on its savings bank deposits on specific savings amounts. The rates will be in effect from June 1, 2022.
Union Bank raised rates on savings deposits above ₹100 crore to ₹500 crores from 20 basis points to 3.10% from the existing 2.90%. The rate was increased by 50 basis points and 65 basis points on higher economies ₹500 crore to ₹1,000 crores and above ₹1,000 crore from the current 2.90% each to 3.40% and 3.55%.