Banks are likely to take a decision on raising deposit and lending rates this week after the Reserve Bank of India (RBI) hiked its key lending rate on Friday. Bankers say that tight liquidity, the hike in repo rate and a pick up in demand for loans in the coming festive season may force them to hike rates.
“Increase in repo rate (the rate at which RBI lends to banks) does not affect lending rates of banks, and especially of SBI. Deposit rates affect our lending rates,” said Pratip Chaudhuri, chairman, SBI. “However, liquidity is tight in the market and we shall have to pass additional cost of liquidity on borrowers. So, we shall first increase deposit rates and then bank rates. We shall take a decision in this regard at our meeting on Monday.”
Other banks will take their cue from the decision of SBI, India’s largest lender.
In order to contain inflation, RBI had increased repo rate by 0.25 percentage points to 7.50% in its mid-quarter monetary announcement on Friday.
“Demand for loan, which was comparatively low in the April-June quarter, is likely to increase in coming days due to festive season which will put pressure on banks to hike deposit rates,” said the retail banking head of a public sector bank.
“We are currently analysing the situation and will take decision soon regarding (hiking) rates,” he said.
Major private sector lenders such as ICICI Bank, HDFC Bank and Axis Bank did not respond to e-mails from HT.
The festive season is expected to see a surge in demand for credit as people look to buy their homes, cars and consumer durables at this time.