HOME, AUTO LOANS TO COST MORE: BANKERS

The Reserve Bank of India’s decision to hike the key policy rates by 25 basis points will make auto, home and other loans more expensive, as lenders will have no choice but to pass on the additional cost to consumers.

The rate hike is expected to be passed on to consumers, said the ICICI Bank Managing Director, Ms Chanda Kochhar.

“The RBI steps are on expected lines as inflation still remains stubborn and poses a serious threat to growth,” the Union Bank of India Chairman, Mr M.V. Nair, told PTI here.

He also said the bank will pass on the rate increase to customers “as credit growth has so far been robust this quarter”. However, he refused to specify how soon the base rate hike would be effected.

The RBI has raised the short-term lending (repo) rate by 25 basis points to 7.5 per cent and the short-term borrowing (reverse repo) rate will move up by a similar margin to 6.5 per cent.

Subsequently, the interest rate under the Marginal Standing Facility, an additional borrowing window, has gone up to 8.5 per cent from the earlier level of 8.25 per cent.

“It will (25 basis point hike) put pressure on the short-term deposit rates and subsequently on the lending rate,” said the Indian Overseas Bank Chairman and Managing Director, Mr M. Narendra.

However, the rate hike by banks may not be immediate, as credit offtake has started moderating, he said.

Echoing a similar view, the IndusInd Bank Executive Vice-President, Mr Moses Harding, said the rate hike will push the shorter end of the rate curve with higher inversion into the longer end.

The Bank of Baroda Executive Director, Mr R.K. Bakshi, too, said the RBI move was expected, as inflation has become a serious threat to growth.

He also hinted at the possibility of a base rate hike by his bank, saying though no automatic hike will be effected, the bank will act according to the liquidity condition, which he termed as comfortable as of now.

According to the Punjab & Sind Bank Executive Director, Mr P.K. Anand, there will not be any knee-jerk reaction from the banks, as the rate hike was on expected lines.

The IDBI Bank Executive Director, Mr R.K. Bansal, said the market was expecting the hike and this may not result in banks increasing the rates immediately.

In the last one-and-a-half months, several banks have revised the lending and deposit rates following the annual policy announcement last month. Monetary transmission has been quite strong, with 45 scheduled commercial banks raising their base rates by 25-100 basis points after the May 3 policy.

Cumulatively, 47 banks have raised their base rates by 150-300 basis points during July 2010-May 2011, the RBI said, adding that the higher cost of credit is restraining the credit growth. However, it still remains fairly high, suggesting that economic activity is holding course

SOURCE: http://www.thehindubusinessline.com/industry-and-economy/banking/article2109580.ece