The Hindu Business Line : `Sub-PLR lending to take a hit, short-term rates may rise'

THE Reserve Bank of India today hiked the reverse repo and repo rates by 25 basis points, which could translate into an increase in deposit and lending rates, according to bankers.

Long-term deposits might carry a premium, according to Mr M. Balachandran, Chairman and Managing Director, Bank of India. "We may see a hike in bulk deposit rates," he added.

Banks may also have to cost their lending appropriately and rationalise interest rates segment-wise, and the gap between the loans given below the prime lending rate and other loans is likely to reduce, he said. "Small borrowers, those who have availed agriculture loan and individuals need not have any anxiety."

Mr M.V. Nair, Chairman and Managing Director of Dena Bank, agreed that sub-PLR lending would reduce. "The huge discounts available to the corporate sector could dry up."

Credit growth will be consistent in the medium term and deposit mobilisation has to match this credit growth. So, there could be hike in short-term deposit rates, Mr Nair said. "Realignment in deposit rates of some banks is likely."

According to Mr A.K. Purwar, Chairman of SBI, the RBI's move to raise interest rates for the second time this year is a signal of its commitment to price stability and control inflationary expectations in the economy.

"The increase in corpus for micro-finance, focus on credit delivery, and exemption to agriculture and small and medium enterprises from additional provisioning for standard assets will support the flow of credit to the priority sectors."

Mr K.V. Kamath, Managing Director and CEO of ICICI Bank, said: "The emphasis on stability along with growth and the increase in the general provisioning on standard assets is a good signal to the financial system to be conscious of the risks in an environment of rapid growth."

Card rates, or the rates which banks offer on small deposits, are likely to rise by 25 basis points, according to Mr Shailendra Bhandari, Managing Director of Centurion Bank.

"Card rates for small savings bank accounts have not moved up for one year, so savings bank rates may rise by 25 basis points."

Welcoming the RBI's move to raise interest rates, Mr Haseeb A. Drabu, Chairman and CEO of Jammu and Kashmir Bank, said: "This will empower banks to first stop repricing assets, which has been a bleeding spot for their bottomlines. More importantly, short-term rates will align and rise."

, Our Coimbatore Bureau reports: The Karur Vysya Bank Chairman, Mr P.T. Kuppuswamy, said the mid-term review of the Monetary Policy reiterated the apex bank's stable interest rate bias.

At the same time, it highlighted the potential risks that the economy could face in the event of inflation rearing its head on account of the rising global oil prices and international interest rate cycles moving from a lower to a rising plane.

On the reverse repo rate hike, he conceded that it was largely expected and that the debt market had already positioned itself for such a hike.

`Given the continued hawkish stance of US Fed with a rising bias, the interest rates in India cannot continue at lower levels,' he said.

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