Banks,HFCs may go for another rate hike,soon

State Bank of India’s asset liability committee is scheduled to meet next week to take on call on raising their rates. “The rate increase may happen and RBI clearly says that it wants better transmission in the economy,” said a senior official with SBI.

“Banks and HFCs have not passed on the last 1-2 rate hikes by RBI and there is some margin compression that we all have taken because of this. If there is an additional rate hike then the ability to withstand may go down and we may have to raise the rates,” said KV Srinivasan,CEO,Reliance Commercial Finance.”

Bankers say that the liquidity is not a problem now because the government has actually not started borrowing but if the government’s borrowing programme for the second half happens along with an additional borrowing of Rs 50,000 crore to Rs 55,000 crore that will put certain level of stress on the interest rates.

“The rate the government fixes will become the benchmark for the money market,” said Srinivasan. Some feel that the government may have to look for a counterbalance in terms of slowdown in growth.

“The government’s borrowing will lead to a rise in the liquidity tightening but at the same time a counterbalance may come from a slowdown in growth,” said KVS Manian,head of retail liabilities and branch banking at Kotak Mahindra Bank.

While banks have been trying to absorb the recent rate hike pressures by not passing it on to customers,a top official with a leading global financial firm said that RBI wants banks to raise the rates so that the growth remains weak and inflation expectations come down.

“RBI may defer purchasing securities to keep liquidity tight and force bankers to raise the rates which may further dampen growth and help keep inflation under control,” said an official at a global financial services firm.