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Saturday, Nov 06, 2004

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Industry & Economy - Petroleum

`Fuel price hike may cause hardening of rates'

C.J. Punnathara

Kochi , Nov. 5

SEVERAL bankers see the hike in petroleum prices as the immediate trigger, which will lead to a hike in interest rates.

"We expect the interest rates to harden in the coming weeks when the revision in petroleum prices builds up inflationary expectations in the economy. Though still comfortable, the liquidity position is also expected to remain firm as the economy enters the post-monsoon busy season. These two factors are expected to harden interest rates in the short-run, may be by 50 basis points," Mr N.R. Achan, Chairman of Catholic Syrian Bank, said.

In order to meet the potential rush for advances during the coming season, several banks, including Catholic Syrian Bank, have hiked deposits rates to create more liabilities.

The immediately casualty could be home loans, some bankers warned. The increase in risk weight given to housing loans in the recent Credit Policy has added more capital cost to such deposits. Presently, banks are bearing this cost and not passing it on to the customers, Mr K.P. Padmakumar, Chairman of Federal Bank, said. Further, spurt in the inflationary spiral would force banks to increase home loan interest rates in order to accommodate the increased capital costs.

Several players in the market are reportedly sounding out the market leader, HDFC, to take the lead in revising the home loan rates. Others say out that the worst-case scenario in the international oil industry has been played out and there is nowhere else for the prices to go but down. They say that the new home loan customer, who is making a lifetime investment, spanning a repayment period of 15 to 20 years can easily wait for six months to one year for the rates to ease.

In effect, they said that any revision in interest rates would force the consumer to defer his investment decision.

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