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RBI Monetary Policy | Bankers predict up to 50 bps hike in lending rates after repo rate reaches 5.4%

A 50 bps rate hike may seem hawkish, but it was required to control inflation, South Indian Bank MD & CEO Murali Ramakrishnan said

August 06, 2022 / 06:43 AM IST
RBI Governor Shaktikanta Das. (File photo)

RBI Governor Shaktikanta Das. (File photo)

Bankers are expecting loan rates to rise by 25 basis points (bps) to 50 bps in the near term after the Reserve Bank of India (RBI), in its monetary policy committee (MPC) meeting on August 5, decided to raise the benchmark repo rates to 5.40 percent from 4.90 percent earlier.

“The marginal cost of funds-based lending rate (MCLR) linked loan rate is expected to increase by 20 bps to 30 bps, and the deposit rates will rise by 30 bps to 50 bps,” Federal Bank Chief Financial Officer (CFO) and Group President Venkatraman Venkateswaran told Moneycontrol on August 5.

“We expect the marginal cost of funds-based lending rate-linked interest rates to go up between 25 bps and 50 bps,” says Shriram Transport Finance Co (STFC) Vice-Chairman and Managing Director (MD) Umesh Revankar.

Neeraj Gambhir, Group Executive of Treasury, Markets and Wholesale Banking at Axis Bank, says he expects the deposit and lending rates to increase in due course in line with the hike in policy rates. “The exact quantum of increases will depend on the evolving liquidity and market conditions,” he said.

Murali Ramakrishnan, MD & Chief Executive Officer at South Indian Bank, says an increase of 50 bps in the repo rate may seem hawkish, but it was required to numb the inflationary trends.

The central bank, while announcing its policy decisions, retained its retail inflation forecast for the current financial year at 6.7 percent. In its earlier policy review in June, the central bank had forecast Consumer Price Index (CPI) inflation would average 6.7 percent in 2022-23.

“This is the third time in quick succession that the RBI has increased rates. The earlier revisions have spurred economic activity proving its utility. However, the real worry is inflation, which is forecasted at 6.7 percent for FY23, with retail inflation being the chief culprit,” Ramakrishnan said.

The persistent rise in interest rates, however, could dent credit demand, as per Shishir Baijal, Chairman & MD at Knight Frank India.

“For the real estate sector specifically, the third subsequent rate rise will mean a deterioration of affordability and may impact the sentiments of home buyers. With the cumulative rate hike until today, assuming complete transmission, a prospective home buyer’s affordability shrinks by around 11 percent, i.e. from the ability of purchasing a house of Rs 1 crore shrinking to Rs 89 lakh now,” Baijal said.


By allowing inward remittances through Bharat Bill Payments System (BBPS), non-resident Indians (NRIs) will now be able to pay for basic bills just by keying in certain details, K Paul Thomas, MD & CEO of ESAF Small Finance Bank, told Moneycontrol.

“Loan repayments, bills for utilities like electricity, gas, DTH, water, insurance, mutual funds, and fastag can be done. And more importantly education fees, credit card payments, housing society payments, etc will also become a lot more easier,” he added.

Anil Gupta, Vice-President of Financial Sector Ratings at ICRA, said enabling inward remittance transactions on BBPS will improve ease of access but will not majorly increase banks’ remittance fees.

“In our view, this (BBPS) shall be an additional enabler to widen the scope and ease of access of the payment systems, (but) shall not be a material enhancer or inhibitor for forex inflows or fee income as a whole for various market participants,” he said.

Outsourcing guidelines

The central bank’s announcement today that it will soon issue directives to lenders on outsourcing of financial activities is in line with expectations, Amit Das, CEO and Co-founder of said, referring to the RBI’s recent circulars on issuance norms on co-branded credit cards, and prepaid wallet instruments, among others.

“Sharing of data and technologies forms the backbone of fintech, bank and NBFC relationship. However, over the last few years, these relationships have taken forms where the boundaries between a regulated and non-regulated financial services entity have been blurred,” Das said.

As per Revankar, there has been a misuse of outsourcing activity on sourcing of customers and methods of collections by fintech companies, and therefore, the RBI is trying to control obvious misuse of NBFC and bank franchises by other unregulated entities.

“There are possibilities of huge consumer lending without proper due diligence,” Revankar said.

Sugandh Saxena, CEO of lobby group Fintech Association for Consumer Empowerment (FACE), said public discourse will allow the fintech industry to contribute to developing digital lending guidelines, which mitigates risks and encourages competition.

“The fundamental remains that outsourcing should not diminish the responsibility of the regulated entities in a way that can harm customers and the financial market's stability and integrity. And therefore, the regulatory framework needs to ensure that outsourcing arrangements are kosher to manage and mitigate the risks suitably,” Saxena said.
Piyush Shukla
first published: Aug 5, 2022 06:29 pm