ICICI Bank, BoI, Indiabulls Housing Finance shares rise up to 9%; here’s why

Shares of ICICI Bank, Bank of India, and Indiabulls Housing Finance jumped nearly 9% in intraday trade on Monday as these banks raised their lending rates ahead of the Reserve Bank of India (RBI) monetary policy committee (MPC) meeting later this week. On Monday, private sector lender ICICI Bank hiked its marginal cost of funds based lending rate (MCLR) by 15 basis points (bps) across tenors, state-run Bank of India by up to 10 bps, and Indiabulls Housing Finance by 25 bps. MCLR is the lowest interest rate that a bank or lender can offer.

Following the rate hike, shares of ICICI Bank rose as much as 0.8% to ₹825 on the BSE. Similarly, the share price of Bank of India gained 2.5% to hit an intraday high of ₹48.90. Indiabulls Housing Finance, one of the leading home finance companies, saw a surge in buying, with the stock price rallying 8.6% to ₹119.55 on the BSE. In comparision, the BSE Sensex was trading 432 points higher at 58,002 levels at the time of reporting.

ICICI Bank, one of the largest private sector lenders, says it has raised its MCLR rate by 15 bps across tenors. With this, the overnight and one-month MCLR have been revised to 7.6% and the three-month MCLR to 7.70%. The six-month MCLR has been hiked to 7.85% and one-year MCLR by 7.90%.

Public sector lender Bank of India has also hiked its MCLR by up to 10 bps, taking its overnight MCLR to 6.80%. The one-month MCLR raised to 7.30%; three-month to 7.35%; six-months to 7.45%; and one-year to 7.60%.

Meanwhile, Indiabulls Housing Finance on Monday said it has increased its lending rates by 25 basis points, in line with other leading home loan lenders and banks recent revisions. The rates will be effective from August 1 for new borrowers while for existing borrowers, the revised lending rates will be effective from August 5 onwards, it said in an exchange filing on Monday.

What is MCLR?

The RBI launched the MCLR rate, the minimum interest rate at which banks can lend to customers, by replacing the base rate system on April 1, 2016. The MCLR ensures the benefits from the Reserve Bank's monetary policy reach the borrowers.

Banks are not allowed to lend below the MCLR, except in some exceptional cases with authorisation from the Reserve Bank. The lending interest rate is derived on the basis of the incremental cost of arranging each rupee for the borrower. The MCLR also ensures transparency in the system utilised by banks to fix interest rates on loans. It also helps the RBI to take more effective monetary policy measures.

Will RBI go for rate hike?

The Reserve Bank of India (RBI) bi-monthly monetary policy will be held between August 3-5 and the central bank is widely expected to go for another round of rate hike in the wake of rising inflation. The RBI has raised the rate by a cumulative 0.90% in May and June to ease inflationary pressure on the economy, with headline inflation continuously breaching the central bank’s upper target limit of 6%. The retail inflation, measured through Consumer Price Index (CPI), stood at 7.01% in June, which marks the sixth month when retail inflation remained above the tolerance band of 4-6% recommended by the RBI.

According to American brokerage firm BofA Securities, the central bank will announce a 0.35% hike in the key repo rate at its meeting this week. The agency expects MPC to retain its FY23 Consumer Price Inflation (CPI) and real GDP growth forecasts, at 6.7% and 7.2%, respectively.

In the last policy meeting in June, RBI Governor Shaktikanta Das-led MPC hiked the repo rate by 50 basis points to 4.9% in order to contain spiralling inflation.