The new rate has been increased to 8.50 percent from the current 8.20 percent for a one-year tenure. Corporate borrowers will be affected by the increase in MCLR. Retail lending, including mortgages, consumer credit and small business loans, relies heavily on external benchmarks. Much like the policy repo rate. This increase actually affects the rising cost of capital. Because banks raise term deposit rates to raise capital to meet loan demand. According to Reserve Bank of India (RBI) reports from December 2022, India’s banking system may need to raise deposit rates further in 2021/22 as credit demand from lenders increases.
The central bank has aggressively raised interest rates to control inflation in 2022.
The cumulative credit-deposit (CD) ratio is expected to reach a four-year high by 2021-22, as credit growth picks up and deposit growth moderates. According to the latest data from the RBI, outstanding loans of Indian banks increased by 17.5% in the 2 weeks to December 2022 compared to the same period last year. Meanwhile, deposits increased by 9.9 percent during this period. From May 2022, RBI’s Monetary Policy Committee has raised interest rates consistently to control inflation. These interest rate hikes to control inflation have naturally slowed down economic growth. His rate increased by 5 times. The increase totaled 225 basis points.
Meanwhile, the US Fed Reserve has also continued to raise interest rates. Because of that, there is a risk of recession. There has been concern about it.