Tight liquidity conditions and High cost of funds:This move by banks follows increases in the repo rate, or the rate at which the central bank lends money to banks, and the cash reserve ratio, the percentage of deposits banks must keep with the central bank, two weeks ago.
With access to funds growing more expensive, most banks raised their lending rates 50 basis points to 100 basis points. SBI raised its rates by 50 basis points last week, and ICICI Bank and HDFC by 75 basis points.
Analysts said banks are looking at aggressively encouraging part-prepayment because of tight liquidity conditions and the high cost of funds. "Such prepayments will help banks to access cheap funds from consumers that can be redeployed to high interest earning segments like personal and corporate loans," said a banking expert.
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