The country’s largest lender State Bank of India (SBI) hiked deposit rates on fixed deposits twice a week, following closely on the heels of private lenders HDFC Bank, Axis Bank and ICICI Bank, signalling a change in the interest-rate cycle.
“It’s quite clear that lenders are factoring in a turn in the rate cycle soon, especially NBFCs, which are starved for liquidity,” said the CEO of a large non-bank lender. They “are firming up plans to renegotiate most term loans that are coming up for renewal at the end of March”.
SBI recently raised its deposit rates by 10 basis points. ICICI Bank, HDFC Bank, Canara Bank and Axis Bank have made similar rate hikes with more lenders expected to follow.
SBI has hiked the interest rate of FDs below ₹2 crore with a tenure of 1 year to less than 2 years by 10 basis points.
The Reserve Bank of India (RBI) has so far maintained the status quo on key rates in a bid to prop up growth. But as core inflation remains stubbornly high, the Street expects the central bank to start hiking rates soon. The cycle could well turn with a possible rise in reverse repo rate, at which banks park short-term surplus funds with the RBI.
The next monetary policy announcement is due February 9.
The US Federal Reserve is set to reverse its loose monetary policy aimed at bolstering the pandemic-hit economy and start raising rates to rein in prices.
“Global monetary policy has seen a reversal on the back of strong growth and strong inflation,” said Shanti Ekambaram, group president, consumer banking, Kotak Mahindra Bank. “We are likely to see rate hikes this year, signalling the end of monetary accommodation.”
The signal of a turning interest-rate cycle is visible in short-term borrowing rates for non-bank lenders that have zoomed by about 20-35 basis points since December, according to an estimate by JM Financial. A basis point is 0.01 percentage point.
“Short-term borrowings have gone up for NBFCs,” said Ajay Manglunia, head of fixed income at JM Financial. “With surplus liquidity gradually drying up and credit demand reviving, non-banks are paying higher (short-term) borrowing costs, which have surged particularly in the past two-four weeks, outpacing even the rise in treasury bill yields.”
Commercial paper (CP) rates across maturities of up to 12 months have surged by about 20-35 basis points since December-end until now, according to an estimate by JM Financial. All such CPs are rated A1+, but investor appetite varies, depending on individual brands.
During the period, treasury bills, sovereign gauges for shorter-duration funding, yielded 5, 21 and 23 basis points higher across three-month, six-month and 12-month maturities, in that order.
India’s largest mortgage lender HDFC raised a three-month CP offering at 3.95% on Friday versus 3.76% it had offered for similar-maturity CPs a month earlier.
Piramal Enterprises sold 101-day CPs offering 6.25% last week compared with 5.90% for 82-day CPs sold about a month ago.
