For loans with very short tenors, HDFC Bank on Tuesday reduced the marginal cost of funds-based lending rate (MCLR) by up to 85 basis points, suggesting that short-term interest rates may have peaked.
The private sector lender decreased its overnight MCLR by 85 basis points to 7.80% while lowering the rate for the one-month tenor by 70 basis points to 7.95%. Rates for 3-month and 6-month loans were reduced by 40 bps and 10 bps, respectively, to 8.30% and 8.70%. Rates for the longer 1-, 2-, and 3-year tenors remained the same at 8.95%, 9.05%, and 9.15%, respectively. In March, HDFC Bank last raised its MCLR by 5 bps across all loan terms, bringing it to between 8.65% and 9.15% annually.
However, some lenders are increasing rates for tenors of one year while maintaining the same rates for shorter tenors. The MCLR for loans with a one-year tenor was raised by 5 basis points to 8.60% on Monday by Bank of Baroda. The rates for the one-month, three-month, and six-month tenors remain the same. The MCLR on Canara Bank’s six-month and one-year tenors has increased by 5 basis points to 8.45% and 8.65%, respectively. The rates have not changed for the one-month, three-month, or overnight tenors.
Following the unanimous decision by the Monetary Policy Committee to maintain the key policy repo rate at its meeting on April 6, yields at the shorter end of the curve have been declining. Bond prices rose intelligently after the announcement, despite the Reserve Bank of India’s (RBI) insistence that the action was merely a pause rather than a pivot.
Dealers point out that the bullishness on short-term paper shows the market is optimistic that policy rates will stay where they are for a considerable amount of time. The government’s enormous borrowing plan for the current fiscal, however, makes a decline in yields at the longer end implausible.
Rate cuts are anticipated by economists for the end of 2023. Sonal Varma, chief economist at Nomura, predicts that rate cuts of 75 basis points might begin in October. “At the margin, risks appear skewed towards an earlier easing, rather than later,” Varma wrote after the monetary policy.
On April 6, it had finished at 7.204%. On Tuesday, the yield on the benchmark completed the session at 7.206%, a little lower than Monday’s closing of 7.220%. The five-year gilt yield touched a day low of 7.003% on Monday after peaking at 7.000% last Thursday following the monetary policy statement. Since May 2022, the RBI has increased the repo rate by 250 bps, bringing it to 6.5%. The State Bank of India’s one-year MCLR, however, has increased by 150 bps or 8.50% since March 2022.
A lender may raise up to Rs. 50 billion in one year.
On Wednesday, HDFC Bank announced that its board would meet on April 15 to discuss raising as much as Rs 50,000 crore through new tier-I, tier-II, and other long-term bonds over the following twelve months. The capital adequacy ratio for HDFC Bank as of December 31 was 19.4%. On the BSE on Wednesday, shares of the bank closed 0.3% higher at Rs 1,663.70 a share.