Rise in MCLR will intensify policy transmission next fiscal year

Current Context: The transformation of the monetary policy will affect the new fiscal year extensively because of the increase in the marginal cost. Rating agency India Ratings and Research (Ind-Ra) expects MCLR (Marginal cost of funds-based lending rate) to increase in FY24.

In FY23, reverse repo rate of 5lakh crores is enabled in banks to review the increase in credit and deposit. This process will not be made available in FY24.
Deposit rates in the banking sector have risen from 150 to 200 basis points in the last year, which is resulted 75 basis points increase rate.
Balance of payments (BoP) is around 60,000 crores, which is not considered to be favorable in the FY24 and the banking sector will face upward pressure.
Liquidity will tighten in the upcoming end of March 2023 because of the effect by advance tax payment, GST payment and TLTRO maturity.
Ind-Ra that the upcoming liquidity rate will be affecting the weak banks with low liquidity.