The Hindu Business Line : Banks to take a call on interest rate hike soon

Mumbai, June 25 With the Reserve Bank of India hiking the CRR and the repo rate, banks are set to take a decision on increasing interest rates in the coming days.

ICICI Bank will watch its cost of funds to decide when to raise lending rates, Ms Chanda Kochhar, Joint Managing Director and CFO, told Business Line. She said that Reserve Bank of India’s move to hike repo and CRR rates by 50 basis points each is a clear indication that system wide the rates will go up.

“We will watch the market situation before deciding how much and when to hike rates,” she said.

The rate hikes will lead to a slowdown in consumer spending and borrowing, which will grow at 12-15 per cent this year, against the earlier growth rate of 35 per cent, Ms Kochhar said.

On the corporate side, she said that there has been no slowdown in the investment pipeline, so far. “Corporates are financing some amount of their expansion plans from their own funding and hopefully, this will continue,” she added.

As a result of the hike in rates, banks will have to recalibrate their growth. More growth will now come from corporate instead of retail.

But margins of banks are not likely to be hit much, as banks will pass on the higher costs to customers, she added.

Treasury income of banks, however, will be volatile and it is difficult to say which way it will move, she said.

Our Mangalore Bureau reports:

Mr Ananthakrishna

Reacting to the increase in CRR and repo rate by the RBI, Mr Ananthakrishna, Chairman and Chief Executive Officer of Karnataka Bank Ltd, said that the RBI has taken these measures to tackle inflation. Bankers will now think about increasing both deposit and lending rates.

Asked when Karnataka Bank will take a decision on increasing rates, he said: “We are going to meet this week and think about the measures to be taken, and how this increase will make an impact.”

Asked if he foresaw another hike by the RBI in the weeks to come, prior to the quarterly policy review in July, he said that corrective measures are necessary, if something drastic takes place. “All these things are driven by oil price, which is not in our control,” he added.

The Chairman and Managing Director of Corporation Bank, Mr B. Sambamurthy, said: “The message is clear that we need some tightening which the RBI is doing. We need to naturally follow it. We need to maintain a delicate balance.” Asked when the bank was increasing lending rates, he said the date was not yet decided.

Our Coimbatore Bureau reports:

While the banking regulator’s intervention was not unexpected, bankers, by and large, felt that the 50 basis point hike in both the CRR and repo rate was a bit ‘too sharp’.

Mr M. Venugopalan

The Chief Executive Officer of Federal Bank, Mr M. Venugopalan, said “I am worried about the whole thing. While the intervention to control the inflationary trend was not unexpected, will it help only by doing this?” he asked referring to the 50 bps hike in the repo and CRR.

He said banks would a difficult time in the days to come. “The rates are bound to go up. Banks in turn, would be forced to exercise caution in lending by imposing stringent credit norms. Default rates would tend to rise and this in turn would have an adverse impact on performance. It is going to be tough,” Mr Venugopalan said, over phone from Mumbai.

The South Indian Bank Chairman, Dr V.A. Joseph, said the bank’s ALCO (Asset Liability Committee) would meet again to decide on the rate hike. “We cannot compete in the market without effecting an increase but will wait for the bigger banks to make the move.”

The Dhanalakshmi Bank CEO, Mr P.S. Prasad, said the bank had decided to increase the PLR marginally to 15.5 per cent from June 26. “The decision was in anticipation of a hike” but “it is a little too sharp”.

He, however, contended that the marginal hike in the PLR would not have a bearing on its lending as less than 3 per cent of its total advances were at this rate.

“We will now give greater thrust to fee-based income, strive to reduce cost by expanding our channels, standardise channel cost and improve productivity and efficiency,” he said.

The Karur Vysya Bank CEO, Mr P.T. Kuppuswamy, said the RBI’s move clearly signalled a rate increase. “With 8.5 per cent getting impounded, it will be difficult to carry on without increasing the rate. Some banks might look at it selectively, sector/industry wise. But the increase would have to be reasonable,” he added.

The Chief Economist at YES Bank, Ms Shubhada Rao, said the RBI’s move was “not entirely surprising”.

“With inflation crossing the double digit mark, the RBI had to swing into action by initiating demand management measures. And the move is aimed at facilitating a ‘soft landing’ for the economy, she told Business Line over phone from Mumbai. Stating that the CRR is an active tool in money management, she said “the measures taken by the RBI have been pre-emptive. Further hike would depend on the demand for non-food credit and non-oil imports”. While Ms Rao does not envisage a review in July, she foresees RBI to initiate measures to impound liquidity after September. “The regulator would probably look at the CRR rather than repo then, because Government spending is round the corner,” she said.

Related Stories:
Loans set to become dearer

More Stories on : Interest Rates | CRR & Bank Rates

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page