RBI policy review effects repo rate hike, but banks to wait before hiking interest rates on loans

Jan 28 2014, 20:39 IST
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You have to look at inflation and what we are having to pay our depositors. Reuters You have to look at inflation and what we are having to pay our depositors. Reuters
SummaryAfter RBI repo rate hike, from SBI, ICICI Bank, HDFC, others, all say will wait to see trend...

Bankers today said they will wait to see the trend in inflation and deposit fronts before taking a call on hiking lending rates after the RBI's money tightening move in its policy review.

SBI Chairperson Arundhati Bhattacharya said the bank management will be meeting this evening to take a call on both lending and deposit rate hikes.

When asked if banks don't pass on rate hikes how will the objective of monetary transmission happen, she said it will only happen when it is actually affecting the cost of funds.

"You have to look at inflation and what we are having to pay our depositors. On one side, depositors have to be given some return that makes some sense and on the other side we cannot give so much of return that our borrowers are unable to bear the pressure of rates. So, it is a call we have to take in the overall context," she said.

The Reserve Bank of India (RBI) in its Third Quarter Review of Monetary Policy today increased the short-term lending (repo) rate to 8 per cent from 7.75 per cent and indicated a pause in terms of further rate hikes.

"You should really watch the trend in inflation and in deposits which really impact our cost of funds, and therefore the lending rates. So, you cannot say something very quickly till we actually see what we need to do on the deposit rates as well," ICICI Bank Managing Director Chanda Kochhar told reporters.

Mortgage major HDFC's MD &CEO Aditya Puri merely said "rate hike is is a function of what happens to deposit cost and the demand for credit".

PNB Chairman and Managing Director K R Kamath said bankers are keeping things open but will wait and watch how forces in the market react to today's policy decision.

"It is not the question of the need or transmission. The point is that at what end we have pressure on interest rates on asset side, because of the stress what we are seeing in the asset side, should you increase the stress by increasing the rate of interest," Kamath said.

Bankers also discussed issues like management of distressed assets, vialibility of ATMs and handling of counterfeit notes with the central bank.

"While it is appreciated that there is cost increase that is happening, one need to find a balance between the customer convenience and the cost," Kamath

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