Asian shares are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 1.08% while the Hang Seng is up 0.81%. The Shanghai Composite is trading up by 0.60%. Wall Street’s major indices rose on Monday as a softer stance by US policymakers on China tariffs powered a rebound from last week’s selloff. But stocks pared much of their gains late in the session after a report that the Federal Bureau of Investigation raided the office of President Donald Trump’s lawyer.

Back home, India share markets opened the day on a positive note. The BSE Sensex is trading higher by 107 points while the NSE Nifty is trading higher by 34 points. The BSE Mid Cap index and BSE Small Cap index both opened the day up by 0.4%.

Barring, oil & gas stocks and PSU stocks, all sectoral indices have opened the day in green with metal stocks and realty stocks witnessing buying interest. The rupee is trading at 64.93 to the US$.

Finance stocks have opened the on a mixed note with Prime Securities & Vardhman Holdings leading the gainers. In the latest development, HDFC raised its retail prime lending rate (RPLR) by up to 20 basis points to 16.35% on Monday.

Home loan rates are calculated by reducing the spread from the RPLR.

Reportedly, the revision in interest rate comes on the back of rising cost of our funds. The bank therefore increases the lending rate to maintain the RPLR spread.

Between July 2017 and now, ten-year government bond yields have risen 100 basis points. Although yields have come down since February-March, they are still high. This hike in PLR will help the bank maintain margins in the 2.20% to 2.35% range, which has been its historic average for more than ten years.

One shall note that, banks own government bonds. They need to mark to market the price of these bonds. This basically means that when bond yields go up, and bond prices fall, banks face losses. At other times, when bond yields fall, and bond prices go up, banks book a profit. This is how a cycle operates and banks are expected to deal with it.

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