Home, car and corporate loans have become costlier with banks raising both their MCLR (marginal cost of funds-based lending rate) and external benchmark rates.

With cost of funding set to rise across the board, some banks have also started increasing the interest rates on deposits. While ICICI Bank, Bank of Baroda and Central Bank of India have hiked their lending rates, some of the banks like Kotak Mahindra Bank and Bandhan Bank have upped their deposit rates.

The action on rates has started after the Reserve Bank of India (RBI) did a surprise repo rate hike of 40 basis points and hike in the cash reserve ratio (CRR) by 50 basis points. The excess liquidity in the banking system, which was around Rs 7.2 lakh crore, has shrunk to Rs 5.2 lakh crore.

Private lender ICICI Bank has raised the external benchmark lending rate, which is linked to the RBI’s repo rate, by 40 bps to 8.10%. “ICICI Bank external benchmark lending rate (I-EBLR) is referenced to the RBI policy repo rate with a mark-up over repo rate. I-EBLR is 8.10%, effective May 4, 2022," the bank mentioned on its website.

State-owned Bank of Baroda also hiked the repo-linked lending rate by 40 bps to 6.90%. Central Bank of India has revised its repo-linked lending rate to 7.25% plus the credit risk premium (CRP), up from 6.85% plus CRP.

Some lenders have announced deposit rate hikes across multiple tenor baskets for retail customers.

Kotak Mahindra Bank has increased fixed deposit interest rates by 30 basis points and 35 basis points for the tenure of 390 days and 23 months, respectively. While the 23-month deposits have increased from 5.25% to 5.6%, returns on 390-day deposits have gone up from 5.2% to 5.5%. The change comes into effect from May 6.

Bandhan Bank has also raised the interest rate on deposits by 50 bps for one year to 18 months and above 18 months to less than two-year tenure deposits.

State Bank of India’s asset-liability management committee will meet soon to review its deposit and lending rates.

The change in interest rate dynamics has been triggered by a rise in inflation.