In a sign that interest rates may have peaked at the shorter end, HDFC Bank on Tuesday cut the marginal cost of funds-based lending rate (MCLR) by up to 85 basis points for loans of very short tenors.
The private sector lender slashed its overnight MCLR by 85 bps to 7.80% while for the one-month tenor the rate was reduced by 70 bps to 7.95%. The rate for the 3-month loans was pruned by 40 bps to 8.30% and for 6-month loans by 10 bps to 8.70%. Rates for longer 1-year, 2-year and 3-year tenors were left unchanged at 8.95%, 9.05% and 9.15%, respectively. HDFC Bank had last increased its MCLR in March by 5 bps across loan tenures to between 8.65%-9.15% per annum.
Some lenders, however, are, raising rates for tenors of one year while leaving rates for shorter tenors unchanged. On Monday, Bank of Baroda increased the MCLR for loans of a tenor of one year by 5 bps to 8.60%. Rates for tenors of one month, three months and six months have been left unchanged. Canara Bank has raised MCLR on six-month and one-year tenors by 5 bps each to 8.45% and 8.65%, respectively. For overnight, one-month and three-month tenors, the rates have been left unchanged.
Also Read: HDFC Bank to raise $6 billion in debt over next 1 year
Yields at the shorter end of the curve have been falling after the Monetary Policy Committee unanimously voted to leave the key policy repo rate unchanged at its meeting on April 6. While the Reserve Bank of India (RBI) had asserted the move was a pause and not a pivot, bonds rallied smartly after the announcement.
Dealers point out the bullishness on short-term paper indicates the market is hopeful policy rates will remain at current levels for a fairly long period. However, yields are unlikely to fall at the longer end given the government’s massive borrowing plan for the current fiscal.
Economists expect rate cuts towards the end of 2023. Sonal Varma, chief economist, Nomura, believes there could be 75 bp in cumulative rate cuts, starting this October. “At the margin, risks appear skewed towards an earlier easing, rather than later,” Varma wrote post the monetary policy.
Also Read: HDFC Bank records loan growth of 17 per cent at end of March
On Tuesday, the yield on the benchmark closed the session at 7.206%, a shade lower than Monday’s closing of 7.220%; on April 6, it had closed at 7.204%. On Monday, the yield on the five-year gilt had fallen to an intra-day low of 7.003%; it had hit 7.000% last Thursday after the monetary policy announcement. RBI has raised the repo rate by 250 bps since May 2022, taking it to 6.5%. However, between March 2022 and now, State Bank of India’s one-year MCLR has moved up by 150 bps 8.50%.
Lender may raise up to Rs 50k cr in 1 yr
HDFC Bank on Wednesday said its board would meet on April 15 to consider raising up to Rs 50,000 crore via additional tier-I, tier-II and other long-term bonds in the next 12 months. As of December end, HDFC Bank’s capital adequacy ratio stood at 19.4%. Shares of the bank ended 0.3% up at Rs 1,663.70 apiece on the BSE on Wednesday.