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PSU banks ahead of Pvt peers in raising loan rates

July 15, 2022

PSU banks ahead of Pvt peers in raising loan rates
Public sector banks have taken the lead in passing on the rate hike to new customers, data with the Reserve Bank of India (RBI) showed.

In May 2022, average lending rates on fresh loans taken from PSBs increased by 37 basis points while private sector banks increased rates on fresh loans by 26 bps. For the entire banking system, rates rose by 35 bps. Although PSBs hiked average lending rates on existing loans by 3 bps, private banks stepped up rates by 14 bps.

“The rising policy rate is expected to have a faster impact on the lending rate of fresh loans as new loans can be priced at newer rates, while older loans are re-priced over the year based on repricing dates for specific loans,” said Sanjay Agarwal, senior director, CARE Ratings. “The spread is likely to narrow in the near term and then stabilise over the medium term.”

The RBI increased the repo rate twice by 40 basis points to 4.40% in May 2022 and 50 bps to 4.9% in June 2022 and additional rate hikes are anticipated throughout FY23. As per Fitch Ratings, rates could reach 5.90% by end-2022 and 6.15% by end-2023, then remaining at this level through 2024.

In view of this tightening interest rate scenario, many banks have raised their lending rates.

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