Our Bureau

Mumbai, Jan. 24

THE possibility of an upward movement in lending and deposit rates cannot be ruled out in the wake of the Reserve Bank of India's move to increase the reverse repo and repo rates by 25 basis points, bankers said.

As the hike in reverse repo and repo rates are likely to put pressure on banks' cost of funds, banks may resort to an increase in rates for their customers to soften the impact.

Mr Cherian Varghese, Chairman and Managing Director, Union Bank of India, said: "One cannot expect a lower rate of interest scenario. Deposit rates have already moved up. We have to wait and watch in the medium term to see if lending rates need to be raised."

Bank of Baroda does not plan to hike lending rates, according to Mr A.V. Mahajan, Executive Director.

The bank may raise deposit rates in certain brackets, by 25 basis points. Earlier, the bank had raised the rates for some time periods.

As a result of the hike in reverse repo and repo rates, the cost of funds for banks will go up and yield on advances will also increase, said Mr Sudhir Joshi, Treasurer, HDFC Bank.

The actual rise in the market rates and when they will happen will depend on competitive forces, he added.

Mr Ramesh Sobti, Executive Vice-President and Country Representative, ABN Amro Bank, also said that the rate hike would induce upward adjustment in the banks' cost of funds.

That is likely to induce some increase in their effective lending rates, which are already treading upwards.

Mr Mohan Shenoi, Group Head, Treasury, Kotak Mahindra Bank, said: "Bank term deposit rates may move up leading to higher lending rates in order to protect margins."

(This article was published in the Business Line print edition dated January 25, 2006)
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