In response to a hike in key lending rate to 6.25% by the Reserve Bank of India (RBI), Andhra Bank has followed suit by increasing its Marginal Cost of Funds Based Lending Rate (MCLR) by 0.05%, an increase of five basis points, across various tenors ranging from overnight to one year. What this means for the customer is that loans for financing house or new automobile purchases can get more expensive. Other banks have already responded to the increase in rates by the RBI, such as Oriental Bank of Commerce and Karur Vysya Bank.
With the Indian economy poised for a serious growth spurt in the coming months, but with confidence in financial institutions waning following several crores worth of deficit of funds and the ability to not recover capital loaned to the tune of thousands of crores, this will prove to be a very interesting period of time for financial institutions.
Larger banks, the likes of State Bank of India, and HDFC Bank had already raised their MCLR prior to the announcement from the RBI. With respect to Andhra Bank, the new lending rates for overnight, one-month, three-month, six-month and one-year tenors currently stand at 8%, 8.05%, 8.25%, 8.40%, and 8.55%, following the increase in rates. In a recent filing with the Bombay Stock Exchange (BSE), Andhra Bank said that the new MCLR will be in effect from the 15th of June, 2018.
In response to this announcement, the stock price of Andhra Bank fell by almost 3%, an anticipated initial reaction to the announcement of increasing rates.