Giving savers more reasons to cheer ahead of the Union Budget, lenders like State Bank of India (SBI), HDFC Bank, Axis Bank and ICICI Bank have reportedly opted to hike the deposit rates. Deposit rates are on the rise as lenders are following non-banking financial companies (NBFCs). The NBFCs are in the lead as far as the competition for funds is concerned.

The State Bank of India, which is the largest lender in India, has increased deposit rates on fixed deposits not once but twice earlier this week. Hinting towards a change in the interest-rate cycle, the country’s largest lender is taking a cue from private lenders HDFC Bank, Axis Bank and ICICI Bank.

Speaking to the Economic Times, a Chief Executive Officer (CEO) of a large non-bank lender opined that lenders are factoring in a turn in the rate cycle. “It’s quite clear that lenders are factoring in a turn in the rate cycle soon, especially NBFCs, which are starved for liquidity,” the CEO of the non-bank lender was quoted as saying.

The CEO of the non-bank lender suggested that lenders “are firming up plans to renegotiate most term loans that are coming up for renewal at the end of March”. According to the report filed by ET, SBI has hiked its deposit rates by 10 basis points while ICICI Bank, HDFC Bank, Canara Bank and Axis Bank have also come up with identical rate hikes. The report added that more lenders are tipped to follow the suit. The SBI has increased the interest rate of FDs below INR 2 crore

The Reserve Bank of India (RBI) has remained in the existing state on key rates with an aim to support the growth. However, the Street expects the central bank to start hiking rates soon since the primary inflation has remained on a high amid these testing times.

The cycle can turn with a possible increase in reverse repo rate, at which banks position the short-term surplus funds with India’s central bank and regulatory body – RBI. The report added that the next monetary policy announcement is slated for February 9.

The US Federal Reserve is all set to reverse its wobbly monetary policy which was aimed at encouraging the pandemic-hit economy. “Global monetary policy has seen a reversal on the back of strong growth and strong inflation,” said Shanti Ekambaram, who is the group president, consumer banking, Kotak Mahindra Bank. “We are likely to see rate hikes this year, signalling the end of monetary accommodation,” Ekambaram added.

According to an estimate by JM Financial, signs of turning interest-rate cycle is visible in short-term borrowing rates for non-bank lenders that have moved about 20-35 basis points since December. It should be noted that a basis point is 0.01 percentage points.

“Short-term borrowings have gone up for NBFCs,” said Ajay Manglunia, who is the head of fixed income at JM Financial. “With surplus liquidity gradually drying up and credit demand reviving, non-banks are paying higher (short-term) borrowing costs, which have surged particularly in the past two-four weeks, outpacing even the rise in treasury bill yields,” he added.

As per JM Financial’s estimation, Commercial paper (CP) rates across maturities of up to 12 months have risen about 20-35 basis points since December-end until now. On Friday, HDFC raised a three-month CP offering at 3.95% while India’s largest mortgage lender had offered 3.76% for similar-maturity CPs a month ago. Piramal Enterprises managed to sell 101-day CPs offering 6.25% last week as compared to 5.90% for the 82-day CPs sold a month earlier.