ICICI Bank, Bank of Baroda Hike Repo-Linked Lending Rates by 40 bps. How it Will Impact

After a mid-cyclic RBI rate hike, on Thursday, ICICI Bank raises the external benchmark lending rate by 40 bps to 8.10 per cent. “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 per cent p.a.p.m. effective May 4, 2022,” the bank mentioned on its site. Meanwhile, the Bank of Baroda also hiked the repo-linked lending rate by 40 bps to 6.90 per cent. The Reserve Bank of India (RBI) on Wednesday raised the benchmark lending rate or repo rate by 40 basis points (bps) to 4.40 per cent. This was also the first instance of the Monetary Policy Committee (MPC) making an unscheduled increase in the repo rate. The decision was taken to contain inflation that has remained stubbornly above the target of 6 per cent for the last three months.

What is The External Benchmark Lending Rate?

External Benchmark Lending Rates (EBLR) are the lending rates set by the banks based on external benchmarks such as repo rate. This is the minimum interest rate at which commercial banks can lend. RBI introduced the Base Lending Rate (BLR) system in 2010, it moved to a Marginal Cost of Funds-based Lending Rate (MCLR) system in 2016, and in October 2019, it further introduced the External Benchmark-Linked Lending Rate (EBLR) regime.

When the RBI hikes the Repo Rate, it means that the cost of borrowing will be more for commercial banks. So, now that the RBI has increased the repo rate, lenders like ICICI, and Bank of Baroda have hiked their repo-linked interest rates against home loans, car loans, and others.

Now, home, auto, and other loans EMIs will increase after lenders have hiked their key interest rate by 40 bps, following the footsteps of the RBI  in an effort to tame inflation that has remained stubbornly above target in recent months. In that case, the interest rates for existing borrowers linked to repo rate or any other interest rate benchmarks, both internal as well as external, would remain the same till the next reset date of their loans. The new interest rate on their reset date will be calculated after factoring in the benchmark rate applicable on the reset date and credit spreads. This new interest rate will then remain in force till the next reset dates of their loans, irrespective of any repo rate changes by the RBI in the interim. The repo rate cut would not impact any loans availed at fixed interest rates.

Fixed Deposit Interest Rates to Rise

Today, ICICI Bank also has raised interest rates on fixed deposits of more than Rs 2 crore to Rs 5 crore. According to the bank’s official website, the revelation has been made today, May 5th, 2022. Following the modification, interest rates on deposits maturing in 7 days to 29 days have been raised from 2.5 per cent to 2.75 per cent, a 25-basis-point increase. The interest rate on term deposits maturing in 30 days to 60 days has been hiked from 2.75 per cent to 3 per cent, a 25-basis-point increase. The interest rate on fixed deposits maturing in 61 to 90 days has been increased by 25 basis points from 3 per cent to 3.25 per cent.

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