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Indicating that lenders would not be in a tearing hurry to jack up their interest rates following RBI hiking key short-term rates by 25 basis points, bankers today said the move does not warrant any immediate action on their part.
“Immediately after a rate hike like this, and a very small hike, it need not necessarily translate into a hike (lending and deposit rates by banks),” State Bank of India Chairman O P Bhatt told reporters here.
However, SBI’s Assets Liability Committee, which is expected to meet shortly, would take a final call on the issue, Bhatt said. “But there is certainly an upward bias in interest rates,” he said.
The short-term lending (repo) rate now stands at 6.50 per cent and the borrowing (reverse repo) rate at 5.50 per cent after today’s hike aimed at controlling high inflation.
Private lender ICICI Bank also ruled out the possibility of revising its deposit and lending rates immediately.
“A 0.25 per cent increase in policy rates does not immediately translate into a hike. The deposit and lending rates depend on how the cost of funds is moving and demand and supply of money. The cost of deposits is going up. So there is certainly an upward bias in interest rates,” ICICI Bank managing director and CEO Chanda Kochhar said.
Today’s rate hikes do not immediately warrant a raise by banks in their lending and deposit rates, she added.
Union Bank of India Executive Director S C Kalia also said that the policy rate hike is a signal of rising interest rates, but banks will not rush to hike their rates. “There would not be an immediate hike, but there is upward bias on interest rates.”
Oriental Bank of Commerce Executive Director S C Sinha said that the policy rate hikes will not result in an immediate increase in lending and borrowing rates of banks as this was already factored in by the market, given high inflationary pressures.
Responding to a question on RBI’s warning to banks to moderate credit growth in line with the Central Bank’s projections, state—run Union Bank of India’s CMD M V Nair said that there were some discomfort (in RBI) when incremental credit—deposit ratio is over 100 per cent.
“They have not given any number, but there is definitely a discomfort when incremental credit—deposit ratio is over 100 per cent,” Nair said.
The RBI has warned banks to moderate credit growth to its projection of 20 per cent for FY 11 from the current rate of 24 per cent or in other terms reduce the gap between credit and deposit growth. MORE IAS JJ MR 01251820
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