Although the Reserve Bank of India (RBI) has hiked key policy rates by 25 basis points, corporate borrowers need not worry about higher interest rates on loans, at least in the near term. Banks are unlikely to raise interest rates immediately as the increase in the rates has already been factored in by many banks.
However, state-owned IDBI Bank immediately increased its benchmark prime lending rate and deposit rates both with effect from Thursday. While the bank raised its BPLR by 25 bps points to 13.50, it also increased its deposit rates in the range of 10-50 bps.
As for individuals, they may not need to fork out more for an auto loan or a personal loan.
However, since the central bank has increased the provisions for teaser rates in home loans, the cost of such loans is likely to go up. Deposit rates may not be increased in a hurry though.
According to Chanda Kochhar, MD & CEO, ICICI Bank, there would be an upward interest rate bias though they would not go up immediately. OP Bhatt, chairman, State Bank of India, said, “Deposit rates will start rising if there is enough demand for credit. However, unless there is good credit offtake, there is no point raising deposit rates. If there is any interest rate hike at all, it would start from January onwards.”
Bhatt, however, said there might be some banks who would be thinking of raising rates, but surely not all banks.
Added Aditya Puri, MD, HDFC bank, “There will no knee-jerk reaction by banks due to the 25 basis points hikes in policy rates. The economy is growing well and liquidity should ease in the coming days.”
M Narendra, CMD, Indian Overseas Bank, aid, “The rise in policy rates by the RBI is on expected lines and we may not increase our loan rates or deposit rates just yet. We hiked deposit rates recently and our bank has taken proactive steps to generate fair returns to the depositors. I do not see any reason to hike interest rates immediately as the RBI is easing liquidity.”
Kotak Mahindra Bank’s executive director Dipak Gupta said a hike in policy rates would help control inflation. “However, it does not necessarily mean that we should rush to raise interest rates. We are still evaluating the situation and will keep a close watch on the liquidity situation. If we find money becoming tighter, we would revise our interest rates both on deposit and lending sides,” Gupta said.
The deposit growth for the industry has been sluggish so far at 15.03% to Rs 47,88,309 crore year-on-year for the fortnight ended October 8, 2010. It is way below the RBI’s deposit growth projection of 18% for 2010-11. On the other hand, total credit growth has achieved its 20% mark (RBI’s projection in 2010-11) to Rs 34,68,999 crore for the period.
IDBI Bank had revised its BPLR two months back and the deposit rates more than two weeks ago. “We took a call on this as the market conditions demanded it. We also had to take a call on our deposit rates as we wanted to preserve our margins,” IDBI chief financial officer P Sitaram said.
Accordingly, the interest rates of all the bank’s loans, including home loans with option of floating rate of interest, linked to the BPLR will go up now
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