The RBI's repo rate hike is on expected lines and the impact would be transmitted to borrowers sooner or later. However, some bankers feel that with inflation remaining high, the Central Bank might come out with further rate hikes in the future.
“The credit policy is in line with the increasing inflation level, which is almost touching double-digit figures. And given the kind of trend, where inflation is not getting moderated at all, we might see a few more rate hikes by RBI,” Mr H.S. Upendra Kamath, Chairman and Managing Director, Vijaya Bank, told Business Line.
And the RBI wants banks to transmit the rate hike to borrowers, irrespective of a credit slowdown, “which is more or less acknowledged”, he said. Vijaya Bank's Asset-Liability Committee would take a call on the rate hike transmission, he added.
Though lending rates are expected to rise again, Canara Bank will not immediately transmit the burden to borrowers. “It all depends on how deposit rates play out. If they harden, transmission will be immediate. But if there is no upward pressure on deposit rates, then it will take some more time for transmission to happen,” Mr S. Raman, Chairman and Managing Director, Canara Bank, said.
He did not expect much impact from the repo rate hike of 0.25 basis points. In the past 15 months, rates have gone up 3-4 per cent, and it is the cumulative impact that is greater. “Rate hike transmission will happen again, but this time around the wait-and-watch period is slightly longer,” said Mr Raman.
Corporation Bank may not hike the lending rate this month, according to Mr Ramnath Pradeep, Chairman and Managing Director of the bank.
Reacting to the mid-quarter policy review of RBI here on Friday, he said: “Probably we may have to take a call on this, once September is over. This month, there may not be any hike.”
On the factors leading to the 25 bps hike in repo rates, he said there was no alternative. The main focus of RBI was to control inflation.
Mr Pradeep said that the debt crisis in some European countries will also affect the banks in India. “Since it is affecting the banks, naturally there is a need for the banks to take a call on increasing their lending rates,” he said.
However, he hinted at increasing interest rates on short-term deposits immediately. A decision on this will be taken soon, he said.
NEAR-TERM VOLATILITY
Mr P. Jayarama Bhat, Managing Director and Chief Executive Officer of Karnataka Bank Ltd, told Business Line that market was prepared for a 25 basis points hike in repo rate in the mid-quarter policy review by RBI. Although some volatility is expected in the near term, market in general would be neutral, as it had already factored in this move by RBI, he said.
Asked if the banks would pass on the hike to the customers, he said not many banks passed on the burden of 50 bps hike in the last review. “Lending rates are already high, still banks may have no option but to pass it on to the customers this time,” he said.
Mr Bhat said he expected GDP growth below eight per cent for the next two-three quarters. “We expect the growth to be around 7.7 per cent during the current fiscal,” he said.
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