Rajan surprises bankers

Our Bureaus | Updated on March 12, 2018 Published on January 28, 2014

Deposit rates and borrowing costs may not go up substantially for bank customers in the next few days despite the key policy rate hike by 25 basis points on Tuesday. This will however increase the bank’s cost of funding.

Most bankers said they will take a call on whether to hike deposit and lending rates after consulting their respective internal asset liability management committees.

“The RBI move to hike repo rate by 25 basis points was a surprise to me. I had expected the RBI to keep policy rate unchanged. As for Vijaya Bank, there is no immediate plan to relook at base rate or our deposit rates,” V Kannan, Chairman and Managing Director, Vijaya Bank, said

P Jayarama Bhat, Managing Director, Karnataka Bank, said the increase in policy rate expresses the central bank’s strong persistence on bringing in price stability He said that even though there may be some impact on the overall growth and the hardening of the interest rates at the longer end of the rate curve, the markets are expected to take comfort from the dovish guidance of the RBI.George Alexander Muthoot, Managing Director, Muthoot Finance Ltd, welcomed the hike in repo rate. “This move by the RBI would further increase the lending rates putting pressure on the overall demand scenario,” he said Shyam Srinivasan, CEO of Federal Bank, said the RBI Governor Raghuram Rajan’s statement that the enhanced framework for resolution of distressed assets will be operational by April 1 is of significance to the banking industry.

“Elevated interest rates remain a challenge for the industry,” Srinivasan said.

Naresh Thakkar, MD and CEO, ICRA Ltd, said the increase suggests that the RBI is earnestly attempting to meet the targets for combined CPI set in the recommendations of the Urjit Patel Committee. Though the move will be negative for industry as borrowing costs are likely to inch up, the action indicates the near term focus has clearly moved to according higher priority to inflation management.”

Published on January 28, 2014
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