Bankers see no interest rate hike till Oct

Leading bankers today ruled out any rise in the interest rate regime in the second quarter despite the increased pressure on the rates following the Reserve Bank of India's (RBI) policy action.

Admitting that the Reserve Bank decision to raise the short-term lending (repo) and borrowing (reverse repo) rates will increase pressure on interest rates, bankers said they will take a call on interest rates in October when they expect an uptick in credit demand.

Reserve Bank Governor D Subbarao, however, told newsmen that lending and deposit rates will increase with the rising demand for credit.

"No immediate impact on the interest rate. In Q2 interest rate won't go up by and large," State Bank Chairman O P Bhatt told reporters after the monetary policy.

Increase in lending rates will be followed by hike in deposit rates, he said, adding, it is difficult to state for the banking industry as each bank would take a call depending on its asset liability position.

The central bank today upped its short-term lending and borrowing rates by 0.25 per cent and 0.50 per cent respectively to bring inflation down to a projected 6 per cent by March next from the double-digits now.

Canara Bank Chairman and Managing Director A C Mahajan said: "I don't see interest rates are going up before October."

Acknowledging that excess liquidity has disappeared from the system, ICICI Bank Chief Executive and Managing Director Chanda Kochhar said interest rates depend not only on policy measures but also on the liquidity situation. "We are already witnessing a rise in interest rates for wholesale deposits," she said, adding "in the immediate future, I don't see any (upward) move on interest rates but as we go forward we will definitely see something on that line."

Bhatt said, the banking industry has not responded with rate hikes in the last three quarters after RBI upped key policy rates but what has happened over a period that upward bias in the interest rate has built in but with today's action the bias is a little more than had they increased CRR. But that has not happened.

"But now it (interest rates) will depend on what is the credit offtake. Every bank is going to absorb what has happened today. Different banks have different profile and, at SBI, we will be looking and thinking (before arriving at a conclusion) today or tomorrow," Bhatt added.

Echoing similar view, HDFC Bank Managing Director Aditya Puri said: "An upward bias on rates is definite. There will be an increase but I cannot give exact time-frame."

Union Bank Chairman and Managing Director M V Nair said credit growth would definitely take place this quarter but the area of concern is liquidity situation and deposit growth is much below expectation.