Following the emergence of Covid-19 pandemic, both the weighted average term deposit rates and weighted average lending rates eased by 150 bps each between Jan 2020 to Jan 2022.
"Several banks have hiked deposit rates of various tenures by 5-15 bps in Feb-Mar FY2022. This trend is likely to continue in FY2023, with the normalisation of systemic liquidity," ICRA has stated in a report.
The rating agency expects transmission by Banks to the lending rates is expected to be faster in the up cycle.
Government security yields rise
The yield on the 10-year benchmark Government of India (GoI) security (G-sec) has risen by 38 bps during CY2022 so far, to 6.83% on Mar23, 2022, crossing the pre-pandemic level, ICRA has said in a report.
"While the yield had surged in the run-up to the Union Budget FY2023, it corrected sharply thereafter until mid-February, benefitting from cancellations of two auctions. However, the retention of the weekly G-sec auction held on Feb 25, 2022 and the rapid escalation of tensions between Russia and Ukraine (which led to a surge in commodity prices) exerted upward pressure on G-sec vields thereafter," ICRA has said in a report.
"We expect G-sec yields to have an upward bias in the near term given the large Gol borrowings budgeted for FY2023, and upside risks to the CPI inflation stemming from elevated crude oil and commodity prices following the ongoing Russia-Ukraine tensions. The eventual number of rate hikes by the US Fed and developments on India's inclusion in Global Bond indices will also guide yields during the course of the year," the ratings agency has said.