Amid tight liquidity conditions, YES Bank on Wednesday announced a hike in lending and deposit rates. It is the first bank to hike lending rates after the Reserve Bank of India announced measures to tighten liquidity on July 15.

The base rate or the minimum lending rate at which the bank will offer loans has been revised upwards by 0.25 percentage points to 10.75 per cent. The rates on fixed deposits of up to one year have been hiked by 25-50 basis points. The new rates are effective from August 1, 2013.

“Essentially, we were waiting for the RBI to announce its policy and its dovish stance indicates that the forex market is being watched critically. Therefore, it doesn’t appear that the recent measures would be reversed within a couple of weeks,” said Jaideep Iyer, Group President, Financial Management, YES Bank.

According to Iyer, the liquidity tightening was impacting the bank’s margins by about 0.50 percentage points.

“Also, there is enough risk aversion in the banking system, where getting new customers is limited. YES Bank is a smaller bank and for us, we have no baggage of the past. Hence, pricing is not a challenge in such a risk-averse environment,” he said.

Analysts say banks relying on short-term funds are likely to hike their rates soon.

The YES Bank stock touched its 52-week low of Rs 288.55 per share on Wednesday. However, it recovered to close at Rs 323.80, down 7.19 per cent from its previous close on the Bombay Stock Exchange.

Kotak Bank

Indicating a likely hike in the base rate, Dipak Gupta, Joint Managing Director of mid-sized lender Kotak Mahindra Bank, said, “The RBI measures will definitely impact our margins. I would be lying to say they are not significant. However, our asset liability committee will meet in the next week or so and decide. If other banks raise rates we cannot be the only one not to go in for a hike.”

beena.parmar@thehindu.co.in

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