The rate hike by the RBI will be ultimately good for the banking sector as the risk is getting re-priced properly, Mint reported quoting SBI’s Economic Research Department's report.
The report titled ‘Expect repo hikes in June and August too: 75 bps rate hike in FY23 looks imminent’ has been authored by Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.
“The situation is different than during the global financial crisis wherein the lending started increasing aggressively (FY05 onwards) much before the rate hike cycle began (Mar’2010 till Oct’2011). Currently, the rate hike cycle has begun and now the bank lending will increase factoring in the risk," Mint reported quoting Dr Soumya Kanti Ghosh saying so.
“With this increase, the standing deposit facility (SDF) rate now stands adjusted to 4.15 percent and the marginal standing facility (MSF) rate and the Bank Rate to 4.65 percent, maintaining the LAF corridor," the report said.
The Reserve Bank of India (RBI) on May 4 surprised many by hiking the repo rate by 40 basis points (bps) to 4.40 percent with immediate effect. It also raised Cash Reserve Ratio (CRR) by 50 bps to 4.50 percent effective May 21.
"We have demonstrated in the MPC that we are not bound by a set book of rules but be accommodative of changing scenarios," said Das.
As inflation is soaring and expected to remain elevated, an interest rate hike of 25-50 basis points was long overdue and while it may keep the mood of the market subdued for some time as it impacts investors' saving and investment cycle, from a long-term perspective, it may help banks & NBFCs in terms of better margins and growth in the next few quarters.
"The rate hike was much-anticipated factoring rise in food and general inflation. The rate hike is likely to shrink liquidity in the economy overall. As per as the banks are concerned the cost of funds is likely to increase so does the cost of deposits. It may translate into NIMs pressure. However, a quick increase in MCLR may control the NIMs squeeze," said Ajit Kabi, Banking Analyst at LKP Securities.