Banks may hike rates soon as liquidity is drying up: Dena Bank

State-owned lender, Dena Bank today said lending rates in the industry are likely to go up in the near future on account of a strong revival in loan demand and drying liquidity.

State-owned lender, Dena Bank today said lending rates in the industry are likely to go up in the near future on account of a strong revival in loan demand and drying liquidity.

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"The liquidity in the system has begun to dry up with a pick up in the credit offtake, posing a challenge to the banks to raise resources. A hike in lending rates appears imminent," Dena Bank's Chairman and Managing Director D L Rawal said.

Banks' credit growth in 2009-10 grew by 16.7 per cent surpassing the 16 per cent target set by the Reserve Bank of India, on the back of a healthy jump in loan demand in the recent months.

The increased credit offtake has prompted some of the lenders like Union Bank of India to raise deposit rates recently to attract more resources, which could be interpreted as a signal for hike in lending rates as well.

Further, an expected hike in the Reserve Bank policy rates later this month is also likely to prompt banks to up their lending rates. Top bankers had recently said that they would prefer to wait for policy cues from the RBI prior to hiking their rates.