No respite as banks get in groove to hike rates

Bankers say that the increase in repo rates would put pressure on the banks’s cost of funds and banks would be forced to pass on these raised costs to the consumers in the form of higher interest rates. ‘‘There is a possibility that fixed rate loans would firm up due to these moves. However, I don’t think that the banks would be in a hurry to hike rates soon due to the competitive nature of the industry,’’ IndusInd Bank’s managing director Bhaskar Ghose said.

The RBI’s move to increase the reverse repo rate is seen as a risk-mitigating step by the premier banking body to offset problems created by rising inflation which is hovering at 4.7%, the effects of the fuel price hike and the prospective US interest rate hike by 1.25% in July.

However, bankers feel that the rate hike is not likely to translate into a hike in deposit rates. ‘‘With the stock market crash, a lot of cash is returning back to the banking circuit. With this liquidity, I don’t think that the banks would be in a hurry to hike deposit rates even after the RBI’s move,’’ an official from a public sector bank said. BoI and BoB have estimated their credit growth at 25 per cent this year, indicating that credit growth expectations would be more in alignment with bankers’ expectations this fiscal.

What Bankers say

This move could lead to a hike by banks in the lending rates the quantum of which could be worked out in the coming few days

IDBI Bank CEO
G. V. Nageshwara Rao

There is a possibility that fixed rate loans would firm up due to these moves

IndusInd Bank MD
Bhaskar Ghose

Deposit mobilisation could prove tricky for banks, at least in the medium-term

Union Bank of IndiaCMD
M.V. Nair