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Banks draw strategies after RBI hikes key rates

Other banks hints at interest rate hike to tackle RBI move

Apnaloan.com Research Bureau

10 Aug 2007

Mumbai: A day after ICICI Bank upped its lending rates following RBI's key rate hikes, several lenders were mulling their response even as IndusInd Bank hinted at a possible rise this week.

Two private sector players, Yes Bank and ICICI Bank hiked their prime lending rates (PLRs) over the weekend in response to RBI's move to hike repo and CRR rates on Friday.

"The days of absorbing increasing cost of funds are over. RBI's move will definitely impact our cost of funds," IndusInd MD Bhaskar Ghose said.

The bank will take a "balanced view" so that its business does not get affected by any sharp rise in its lending rates, he said.

"Some banks have already hiked their rates. We will see what the larger banks do ," he said, adding "while we have no intention of absorbing the cost of funds, we will take our decision next week."

"You can certainly expect a minimum 0.25% hike but it could go up to 0.50%."

IDBI Bank deputy MD Jitender Balakrishnan, while admitting that the cost of funds would go up, however, said the public sector lender would take a decision on hiking its lending rates only after "discussing the matter".

"Whether we increase our lending rates or absorb the costs will be decided only at our board meet," he said.

Decisions to hike rates are taken at the Board level and IDBI Bank's Board is not scheduled to meet till end-April, he said, indicating that any possibility of an immediate response by the bank was remote.

State Bank of India too has not yet taken a decision on its lending rates. "We are still estimating the impact on our balance-sheet, " SBI MD Yogesh Agarwal said. The bank is expected to discuss its lending rates over the next ten days or so.

Chennai-based Indian Bank's executive director M S Sundararajan said his bank "would not be reacting by jacking up rates."

Terming the RBI's move to hike its key rates as a "quantitative credit supply control technique" Sundararajan said his bank's liquidity position was comfortable. "We just recently came out with our IPO," he said.

The public bank would wait and watch how the situation evolves before deciding on its lending rates, he said. "We feel that there is no need to react immediately."

Bank of Maharashtra's chief MD Mallya said it would analyse the situation before taking any call on its current rates. "We will take a decision, probably in the next ten days or so," he said.

While bankers are unanimous that their cost of funds would go up, the quantum of lending rate hikes and timing are still to be decided by most of them.

It is the private sector lenders who have kick started the PLR hike process. Public sector banks may not, however, immediately jump onto the bandwagon, analysts say.

(Courtesy: TOI)

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