On Wednesday, HDFC Bank raised the marginal cost of the funds-based lending rate (MCLR) by ten basis points to 8.2%. This is the bank’s fifth MCLR rate hike starting in April.

The bank will offer an overnight rate of 7.9%. However, the bank said on its website that the 1-month, 3-month and 6-month MCLR rates would be 7.9%, 7.95% and 8.05%, respectively.

Earlier this month, private sector lenders ICICI Bank and Karnataka Bank raised their MCLR by 10bps to 8% and 9.1%, respectively, while public sector lender Canara Bank increased its MCLR by 10bps to 7.75%. Since April, banks have been raising lending rates based on cost and cost of funds as the interest rate cycle quickens and the Reserve Bank of India (RBI) tightens liquidity conditions.

At its August meeting, the Monetary Policy Committee raised the repo rate by 50bps to 5.4%, the third in a row to rein in headline inflation still above the 6% tolerance ceiling. Overall credit growth in the banking sector remained strong despite increased bank repo rates and subsequent lending rates.

According to RBI, Bank lending rose 15.8% year-on-year in the two weeks to August 12. Bank credit growth remained above 15% for two weeks, an improvement from the 10% pace since June. Credit rose 14.2% year over year in the three months that ended June 30. While personal lending remains strong, lending to the sector is also improving.

Global brokerage Nomura said in a report that the State Bank of India (SBI) expects credit growth to continue and demand in the retail and SME sectors to be good, as the bank sees no signs of a demand reduction. The bank also expects demand for commercial loans to improve due to higher capacity utilisation by manufacturers.

“Capacity utilisation in the economy is around 75%, and in our case, we expect more businesses to look to us for credit facilities compared to the last option of raising funds from the securities market,” SBI chairman Dinesh Khara said in a statement later indicated Q1FY23 results.

A recent report by the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Indian Banks Association (IBA) states that major infrastructure development plans undertaken by the government will have a strong multiplier effect and likely increase demand for infrastructure financing.

“Normal loan growth has held up well across sectors for ICICI Bank and peer banks, although rates have picked up since late May. There seems to be a fair degree of elasticity of demand in the general segment where banks like ICICI Bank operate,” ICICI Bank CFO Anindya Banerjee said in an analyst call.

However, bankers are divided on the sustainability of the banking industry’s loan growth. In the FICCI and IBA survey of 25 banks, 48% expect non-food credit to grow by more than 10%, 24% expect growth between 8-10%, and the remaining 28% expect less than 8%.