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| Lending hike necessary as deposits slowing down: IBA |
| Press Trust of India / Mumbai Aug 15, 2010, 16:26 IST |
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National bankers body, IBA, today said interest rates have to go up sooner than later as there is a decline in the growth of deposits, even as Finance Minister Pranab Mukherjee expressed confidence that banks will not revise upwards their lending rates soon.
Indian Banks Association Deputy Chief Executive Officer K Unnikrishnan said though the tight liquidity situation of the past two months has been eased to a large extent, there has been almost a two percentage points decline in the growth of deposits in the industry as a whole.
The dip has been more pronounced since the Reserve Bank increased the short-term lending (repo) and borrowing (reverse repo) rates by 25 and 50 basis points last month, he pointed out.
"The rate of growth of deposits has been coming down by one to two per cent to around 17 per cent in recent weeks from 19 per cent this time last year," Unnikrishnan told PTI here.
He further said since RBI had hiked the repo and reverse repo rates last month-end, many bankers increased their deposit rates. Therefore, it is natural that the higher cost of deposits is aligned to their lending rates, he said, adding from the beginning of October banks will have to increase their lending rates.
Unnikrishnan said most banks have not revised base rates so far as the new benchmark lending rate can be revised on a quarterly basis only.
However, he does not see a major jack-up either in the lending or deposit rates saying, the revision will be to the tune of 25-50 bps only.
Speaking to newsmen in New Delhi after a meeting with bankers yesterday, Mukherjee had exuded confidence that banks would not raise their interest rates following the tight monetary policy of the central bank.
"No I don't think so. The banks are fully aware of it and they have taken note of it and they have adjusted their plans accordingly," Mukherjee had told reporters in response to a query whether the tight monetary policy would impact the interest rate regime.
However, the country's largest lender SBI Chairman O P Bhatt had told media after meeting the Finance Minister that "I think there is an upward bias (on interest rates) that will take place."
He said most of the banks have so far raised interest rates in the range of 25-50 basis points. The highest has been in the case of PNB, to the extent of 75 bps.
Already a number of public sector banks like Punjab National Bank had raised its lending rate by 75 bps to 11.75 per cent a few days after the RBI move. Similarly, Bank of Baroda, Corporation Bank, Oriental Bank of Commerce, Union Bank, Canara Bank and IDBI Bank also jacked up rates by 50 bps each.
While PSBs chose to up their lending rates, leading private sector lenders like ICICI Bank and HDFC Bank upped their deposit rates following the RBI move.
But IndusInd Bank chief operating officer Paul Abraham told PTI that his bank has no plan to increase either the lending or the deposit rates.
"Our deposits are growing fine. We will review it (both lending and deposit rates hike) in due course," he said.
"Further rise in rates will depend on the liquidity position and how credit off-take picks up after September," Bank of Maharashtra Chairman Allen CA Pereira said.
On Friday, the second largest private sector lender HDFC Bank said it would raise its auto loan interest rates by 0.50 per cent within 7-10 days.
"Borrowing rates have gone up. We are likely to raise our rates (auto loans) by 0.50 per cent in the next 7-10 days," HDFC Bank senior executive vice-president Ashok Khanna told PTI in Mumbai.
Kotak Mahindra Bank too said it is also feeling the pressure to raise its auto lending rates.
"There is pressure to raise our interest rates on vehicle loans but we have not yet taken a decision on it," Kotak Mahindra Bank consumer banking head KVS Manian said.
But he added that the bank has not taken a call on the issue so far.
The RBI on July 27 hiked its repo and reverse repo rates by 25 and 50 bps, respectively as part of its first quarterly review of the monetary policy to contain the high headline inflation. It, however, kept the cash reserve ratio-- the portion of deposits banks are required to park with the central bank in cash -- unchanged.
General inflation for June stood at an uncomfortably high level of 10.55 per cent, while to the discomfort of both the government as well as RBI, after remaining in single digit for two weeks, food inflation has shot back to a high 11.40 per cent for the week ended July 31 to 9.53 per cent for the week ended July 24.
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