'ICICI Bank, PNB' Hike External Benchmark Based Lending Rates

Two major banks -- ICICI Bank and PNB -- raised their lending rates after the RBI increased the benchmark interest rate by 0.50 per cent on Friday. The Reserve Bank of India (RBI) increased the key policy repo rate -- at which it lends short-term money to banks -- by a steep 50 basis points or 0.5 per cent to a three-year high of 5.40 per cent to tame high inflation.

Retail inflation has remained stubbornly high at over 6 per cent for more than the past six months in a row. ICICI Bank External Benchmark Lending Rate (I-EBLR) is referenced to RBI policy repo rate with a mark-up over repo rate, ICICI Bank said in a notification. "I-EBLR is 9.10 per cent p.a.p.m. (per annum payable monthly) effective August 5, 2022," the private sector lender added. State-owned Punjab National Bank (PNB) also raised the repo, the external benchmark, linked lending rate to 7.90 per cent.

"Consequent upon an increase in repo rate by RBI, the Repo Linked Lending Rate (RLLR) has been revised from 7.40 per cent to 7.90 per cent with effect from August 8, 2022," PNB said in a regulatory filing. Earlier this month, ICICI Bank also revised the marginal cost of funds-based lending rate (MCLR) by 0.15 per cent across all tenors ahead of the RBI policy rate announcement.

A report by an internal study group of the RBI in 2017 said the internal benchmark rates like base rates or MCLRs were not delivering effective transmission of the monetary policy repo rate decisions of the central bank. It then recommended switchover to an external benchmark. Subsequently, all new floating rate personal and retail loans (housing, auto), and floating rate loans to Micro and Small Enterprises by banks were linked to an external benchmark (repo) from October 1, 2019.

Banks can take the external benchmark as the RBI's repo rate or the government's treasury bill-based yields published by the Financial Benchmarks India Private Ltd (FBIL) or any other benchmark market interest rate published by FBIL.

The lenders are free to decide the spread over the external benchmark as well as to offer such external benchmark-linked loans to other types of borrowers as well. As per the RBI directions, the interest rate under the external benchmark is supposed to be reset at least once in three months.

(PTI)