Home, auto loans to become costlier: Bankers

Retail and corporate credit, including home and auto loans, are set to become costlier after the Reserve Bank of India’s latest increase in the key rate.

“Banks are likely to increase both lending and deposit rates following the RBI action. There could be a minimum 25 basis points rise in lending rate,” Oriental Bank of Commerce Executive Director, Mr S.C. Sinha, told PTI.

Banks have not raised the interest rates following the September review of credit policy, Mr Sinha said.

With the present round of rate hike, banks would have to readjust rates in line with the increase in cost of funds, he added.

The Reserve Bank of India (RBI) has raised the repo rate by 25 basis points to 8.50 per cent and reverse repo will move up by a similar percentage to 7.50 per cent.

Repo is the short-term rate at which the RBI lends to banks, while reverse repo is the rate at which it gets funds from banks.

The central bank has hiked the policy rate five times this fiscal. In the last one-and-a-half months alone, it has raised the key rate (repo) by 50 basis points.

Echoing Mr Sinha’s views, IDBI Bank Executive Director, Mr R.K. Bansal, said: “lending rate would certainly go up on two counts — one RBI has raised policy rate and second deregulation of deposit rate on savings bank accounts’’.

Cost of funds will go up for banks and some increase will be passed on to customers, Mr Bansal said, adding that the rate hike could be in between 25-50 basis points depending on the liquidity positions of each bank.

Interest rate under the Marginal Standing Facility, an additional borrowing window for banks, has gone up to 9.50 per cent from the earlier level of 9.25 per cent.

This is the 13th time since March 2010 that the RBI has raised key interest rates to check inflation, which is ruling close to 10 per cent.

State Bank of India Managing Director, Mr Diwakar Gupta, said revision of interest rates would depend on the liquidity position of banks. If deposit rates go up, lending rate would also see an increase, he said.

According to Canara Bank Executive Director, Mr A.K. Gupta, the rate hike by the central bank is on the expected lines. Banks may not raise rates immediately.

Each bank would take a call on interest rate in its respective asset liability committee, Indian Overseas Bank Executive Director, Mr A.K. Bansal, said.

The other high point of the policy announcement is that RBI has hinted a pause as far as future rate hike is concerned. This has cleared uncertainty in the market, Mr Gupta added.

COMMENT NOW