In general terms, a repo rate hike makes borrowing costlier and savings more attractive. The changes in policy repo rate make a significant impact on both lending and deposits interest rates. While in a scenario of a higher repo rate, the cost of funds goes higher for banks - resulting in rising interest rates for home loans, car loans, and personal loans - which in return hit your pockets when you pay your monthly instalments (EMIs) back to the lender.
However, the case is different for depositors. A rate hike gives room to banks for raising interest rates on deposits and hence making fixed deposits and savings accounts attractive for customers to park their money and earn extra on them.
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 across the world have their eye on the US Federal Reserve which is likely to announce a decision to increase rates later tonight. Central banks in many countries are raising rates to counter the effects of inflation. These costs of borrowing had fallen to record lows during the pandemic to bolster growth."
Following this trend, the RBI has increased its repo rate from 4.00% to 4.40% and according to the JSA Partner this is likely to have a significant impact on the market including on:
1. Short-term deposits – short and mid-term rates always rise quickest 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's a list of banks that have raised their interest rates on either lending benchmarks or fixed deposits or savings after RBI's repo rate hike.
1. ICICI Bank:
On the same day, when RBI surprised markets by hiking the repo rate by 40 basis points to 4.4%, ICICI Bank also changed its external benchmark lending rate with effect from May 4, 2022.
It said on its website, "ICICI Bank External Benchmark Lending Rate" (I-EBLR) is referenced to RBI Policy Repo Rate with a mark-up over Repo Rate. I-EBLR is 8.10% p.a.p.m. effective May 4, 2022."
2. Punjab National Bank:
PNB increased 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 said "the Repo Linked Lending Rate (RLLR) has been changed from 6.50% to 6.90% w.e.f. 01.06.2022 for existing customers. For new customers, the revised RLLR will be effective from 07.05.2022."
3. Bank of Baroda:
Interest rates on various loans linked with Baroda's repo-linked lending rate (BRLLR) have been hiked from May 5, 2022.
The bank informed on its website that for retail loans 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 spread of 0.25%.
"For Retail Loans applicable BRLLR is 6.90% w.e.f. 05.05.2022 (Current RBI Repo Rate:4.40%+Mark-Up-2.50%), S.P.0.25%," the bank stated on its website.
4. HDFC Bank:
The major housing finance provider HDFC has increased its Retail Prime Lending Rate (RPLR) on Housing loans, on which its Adjustable Rate Home Loans (ARHL) are benchmarked, by 30 basis points, with effect from May 9, 2022.
5. Indian Bank:
Indian Bank announced on Saturday that it has reviewed the Lending Rate for all Loans/Advances linked with Policy Repo Rate and revised the Lending Rate linked with Policy Repo Rate based on Repo from 4.00% to 4.40%.
That said, the bank revised the lending rate for new customers with effect from May 9, while the existing customers will see the revision from June 1.
6. Kotak Mahindra Bank:
This private sector bank raised its fixed deposit rates across tenures for retail customers on their deposits below ₹2 crore with effect from May 6.
Now, the rate of interest on the popular, 390-day (12 months and 25 days) deposit has been increased by 30 bps to 5.5% and that on the 23-month deposit by 35 bps to 5.6%. Going by the revised rates, the bank’s other deposits such as the 364-day deposit is now offering 5.25%, and the 365-day – 389-day deposit gives 5.4%. Senior citizen customers, that is, those 60 years and above will get an additional 50 bps on these rates.
7. Bandhan Bank:
Bandhan Bank increases interest rates on FDs below ₹2 crore in one to two years tenure by 50 basis points. These rates have come into effect from May 4.
The bank increased its FD rates to 5.75% from the previous 5.25% - a hike of 50 basis points - on tenures 1 year to 18 months, and above 18 months to less than 2 years. Senior citizens earn 6.50% rates.
The remaining rates are unchanged.
8. Jana Small Finance Bank:
The small finance bank has revised its interest rates on FDs by 25 basis points with effect from May 5. Now a regular FD below ₹2 crore offers a 6.50% rate on tenures from 1 year to less than 2 years, while a senior citizen gets a 7.30% rate on the same tenures.
The bank offers a 6.75% rate and 7% interest rate for tenures above ₹years to 3 years, and above 3 years to less than 5 years. Senior citizens get 7.55% and 7.80% on these two tenures. While the bank offers a 6.75% rate on 5 years FD to the general category, the elderly earn a 7.55% rate. For tenures above 5 years to 10 tenures, a regular FD has a 6% rate and senior citizens get 6.80%.
9. Union Bank of India:
The government-owned bank increased its savings bank deposits' interest rates, however, on specific savings amounts. The rates will be effective from June 1, 2022.
Union Bank increased rates on savings deposits above ₹100 crore to ₹500 crore by 20 basis points to 3.10% compared to the existing 2.90%. The rate has been increased by 50 basis points and 65 basis points on savings above ₹500 crore to ₹1,000 crore, and above ₹1,000 crore from the current 2.90% each to 3.40% and 3.55%.
