Savers, you now have more reasons to cheer for the Union Budget lenders like State Bank of India (SBI), HDFC Bank, Axis Bank and ICICI Bank have opted to hike the deposit rates. Deposit rates are rising as lenders are following non-banking financial companies (NBFCs). In competition for funds NBFCs are in the lead.
The State Bank of India, which is the largest lender in India, has increased deposit rates on fixed deposits two times earlier in this week. There is a chance of a change in the interest-rate cycle, SBI is taking inspiration from private lenders HDFC Bank, Axis Bank and ICICI Bank.
A CEO of a large non-bank lender stated his opinion that lenders are factoring in a turn in the 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,” the CEO of the non-bank lender said.
Lenders are ‘firming up’
The CEO of the non-bank lender has also said that lenders “are firming up plans to renegotiate most term loans that are coming up for renewal at the end of March”. According to the report by ET, SBI has hiked its deposit rates by ten basis points and other lenders like ICICI Bank, HDFC Bank, Canara Bank and Axis Bank too have come up with identical rate hikes. The report added that more lenders will most probably follow suit. SBI has also increased the interest rate on FDs below INR 2 crore.
RBI has been in this state on key rates with an aim to support the growth. However, the Street expects the central bank to start hiking rates soon as the primary inflation has been on a high during these testing times.
The cycle may also turn with a possible increase in reverse repo rate, at which banks position the short-term surplus funds with India’s central bank and regulatory body – RBI. The report added that the next monetary policy announcement is slated for February 9.
US Federal Reserve set to reverse monetary policy
The US Federal Reserve is now set to reverse its shaky monetary policy which had been utilized to encourage the economy after the pandemic hit. The global monetary policy has seen a reversal on the back of strong growth and strong inflation, said Shanti Ekambaram, the group president, consumer banking, Kotak Mahindra Bank also said that they are likely to see rate hikes this year, signalling the end of monetary accommodation added Ekambaram.
As per an estimate by JM Financial, signs of a turning interest-rate cycle are now visible in short-term borrowing rates for non-bank lenders that have moved about 20 to 35 basis points since December. Notably, a basis point is 0.01 percentage points.
“Short-term borrowings have gone up for NBFCs,” said Ajay Manglunia, who is the 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,” he added.
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