Money & Banking

RBI likely to hike policy rates to rein in inflation

| | Updated on: Apr 25, 2011

The Reserve Bank of India is likely to raise key policy rates next month on account of continuing high inflation, a move that will put pressure on banks’ lending rates, public sector lender Union Bank of India has said.

“The biggest concern is inflation. Food inflation is still high and we are witnessing pressure on core inflation also. We believe RBI will take measure to contain demand and we expect it to increase key policy rates on May 3, but by how much, it is difficult to say,” the Union Bank Chairman and Managing Director, Mr M.V. Nair, told reporters here today.

The central bank has already hiked its policy rates eight times since March 2010 to suck in liquidity and tame inflation. Headline inflation has been above 8 per cent since February last year.

The RBI’s next quarterly review is slated for May 3 and many experts have already said that a mild hike is on the cards.

Asked if the central bank’s hike in repo and reverse repo rates will impact banks’ lending rates, Mr Nair said: “This will impact the lending rates. But we will not go for any premature hikes. We will wait till May 3 before deciding upon it.”

Mr Nair added that Union Bank had increased its base rate by 50 basis points to 9.5 per cent and hiked the deposit rates to the tune of 75 per cent after the apex bank went for an upward revision in policy rates during the last mid-quarterly review in March.

Union Bank also expects its core fee income or earnings from products like overdrafts and account service charges to go up by 25 per cent this fiscal.

“For four fiscals ending 2009-10, core fee income grew by 36 per cent on average. However, last fiscal, it was down to around 10 per cent. We are offering lots of new products like insurance, mutual funds and so on and this financial year, we again expect a surge to around 25 per cent,” Mr Nair said.

Meanwhile, Union Bank today entered into a memorandum of understanding with Kendriya Vidyalaya Sangathana (KVS) for centralised salary disbursement for employees of the education body across the country.

The bank has developed a customised web portal which provides a database on the salary details of all 56,000 employees of KVS by schools and regional offices.

Mr Nair said the system is scalable and could be expanded to include scholarship disbursement and fee collections in the times to come.

Published on April 25, 2011

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