It was nothing short of a double whammy for common man and companies alike on Wednesday when country’s largest lender State Bank of India (SBI) raised its lending rate by 0.20 per cent to 10 per cent, while rupee plunged by 77 paise to end at over one-month low of 62.39 against the dollar on renewed fears that the US Federal Reserve would look at scaling back its stimulus soon.
While SBI’s move will cause EMI for home, auto and consumer durable loans to go up, rupee plunging against dollar is bad for oil marketing companies and eventually for petrol and diesel prices which has cascading effect on entire economy. The bank has revised the base rate or the minimum lending rate to 10 per cent from 9.80 per cent effective tomorrow, SBI said in a statement. With the revision in base rate, EMI for home, auto and consumer durable loans will go up. However, the bank is offering new loans at concessional rates for a limited period ending January 31, 2014. At the same time, the Benchmark Prime lending Rate (BPlR) was also raised by 0.20 per cent from 14.55 per cent to 14.75 per cent.
Private sector lender, Axis Bank has also revised the interest rates on select maturities for fixed deposits amount less than Rs 1 crore. In two buckets there has been upward revision of 0.25 per cent while there is downward revision of 0.25 per cent in 9 buckets. Term deposit between 13 to less than 15 months now attracts 8.75 per cent, up by 0.25 per cent.
At the same time, there has been 0.25 per cent decrease in various buckets between 61 days to less than six months to 8.25 per cent. Similarly, various buckets between 6 months to less than 11 months the decrease is by similar percentage points to 8.5 per cent. In case of term deposit between 46-60 days, rates have been revised downward by 0.5 per cent from 8.5 per cent earlier.
The new rates are effective from November 1, according to Axis Bank website. SBI’s decision came a day after HDFC Bank raised the base rate by 0.20 per cent to 10 per cent. Commenting on the base rate increase, SBI Chairperson Arundhati Bhattacharya said it is on account of the rise in cost of funds. Repo rate has gone up by 0.50 per cent since SBI had last raised it, she said, adding, the bank has not raised rates to that extent but by only 0.20 per cent.
It is in line with the market and the bank base rate still remains one of the lowest, she added. Earlier this month, SBI raised fixed deposit rate by 0.2 per cent on select maturity. With the revision, term deposit between 180-210 days less than Rs 1 crore now earn 7 per cent against 6.80 per cent earlier. Soon after RBI policy announcement on October 29, Bhattacharya had said: “This is something which the AlCO (asset liability committee) will come to a view on. But yes, some rate change is expected...Which way and what, you need to wait till the AlCO meets and takes a view on it.”
RBI raised short-term lending (repo) rate by 0.25 per cent to 7.75 per cent, making cost of fund expensive for the banks. At the same time, the RBI lowered marginal standing facility (MSF) rate by a similar margin to 8.75 per cent. Accordingly, the bank rate was reduced to 8.75 per cent with immediate effect. Consequently, the reverse repo rate is adjusted upward to 6.75 per cent.
The RBI has left unchanged other rates such as the cash reserve ratio at 4 per cent and the mandatory holdings in government securities and other liquid assets as a solvency measure - Statutory liquidity Ratio (SlR)- at 23 per cent. SBI had last raised base rate by 0.10 per cent to 9.80 per cent in September this year. Back again to rupee, as per experts, the currency fell back to its over a month low due to the fear that US Federal Reserve might again consider tapering down its bond buying program.
Banks and importers again starter heavy dollar buying especially after US non- manufacturing index rose to 55.4 in October. With US economy showing signs to recovery, the fear that Fed might soon start scaling down its $ 85 billion a month stimulus has increased. While the fear of tapering is alike for all the emerging markets, Rupee was hit the most. In the Asia-Pacific region, the rupee was the worst performer as it slid 1.25 per cent as compared to other emerging markets. Indonesian rupiah also came under pressure but managed to limit its fall to 0.48 per cent. New Zealand dollar and Malaysian Ringgit also fell by 0.42 per cent and 0.23 per cent respectively.
Apart from that, experts said another reason which further added pressure on the domestic currency was that the Reserve Bank of India (RBI) might soon wind down its special forex swap window created specially for oil marketing companies. Registering the sharpest drop in last two months, rupee came close to its October 1 ending of Rs 62.46 per dollar. As per Abhishek Goenka, Founder & CEO, India Forex Advisors, “Dollar buying by PSU banks was seen putting pressure on the rupee. Globally, dollar index is seen trading at 80.60 levels and Euro was seen trading flat at USD 1.3500 levels.”
Meanwhile the Indian stock markets also continued to fell with the benchmark Sensex dropping by another 79.85 points to end at over one-week low of 20,894.94. The broader index Nifty also slid by 38 points to 6,215.15. With investors and institutions continuing with profit booking, nine out of the 13 sectoral indices on BSE closed under pressure. The fall was lead by consumer durable index which closed 2.19 per cent down, followed by bank and real estate indices which slid by 1.87 per cent and 1.80 per cent respectively. The foreign institutional investors (FII) remained net buyers in the markets and as per provisional data given by stock exchanges, FIIs invested Rs 271.7 crore in equities.