Borrowing costs for banks will not rise despite rate hike

Karnataka-headquartered banks may not see any increase in their borrowing cost in the medium term despite a hike of key policy rates by the central bank as the liquidity position is comfortable for these financial institutions.

“There will be no increase in the borrowing cost due to the ample availability of liquidity with our bank,” R N Pradeep, chairman and managing director of Mangalore-headquartered Corporation Bank, said.

Recently, Reserve Bank of India has raised repo rate — the rate at which RBI lends to banks — by 25 basis points (bps) to 6 per cent and reverse repo rate — the rate at which RBI borrows from banks — by 50 bps to 5 per cent to contain rising inflation in the economy.

Though the cost of borrowing should increase for banks due to hike in repo rate, most banks are of the opinion that there will be no need to borrow from RBI in near future as there is enough liquidity lying in the banking system due to tepid credit growth.

“We are not going to borrow from the RBI in near future,” Pradeep added.

Karnataka Bank, a private sector lender, also echoed similar sentiment.

“Borrowing cost for our bank will not rise as there is enough liquidity with us. We are also not going to resort to market borrowing in near future,” P Jayaram Bhat, managing director of Karnataka said.

In advances growth front, he said that though growth in advances were not encouraging as of now, it was expected to pick up in the second half of this fiscal.

“We are hopeful of attaining a 23 per cent credit growth by end of this fiscal,” he added.

However, another Bangalore-based public sector lender sees a marginal increase in borrowing cost due to central bank’s action.

“The cost of borrowing will not rise more than eight to 10 bps due to hike in policy rates by the central bank. But, it will not be immediate,” Albert Tauro, chairman and managing director of Vijaya Bank said.

In the credit growth front, the bank is expecting to witness greater demand in the second half of this fiscal, he added.

All the three banks also said that they would hold lending rates at present level till October when they were expecting to review it.

“We will take a call during October depending upon the demand- supply situation. I can’t say whether there will be a lending rate hike or not,” Pradeep of Corporation Bank said.

P Jayaram Bhat of Karnataka Bank also said that he would wait till October to take a call.

“There is an upward bias for increasing lending rates from October. However, the increase will be in the range of 25-50 bps with most possible hike of 25 bps from October,” Tauro of Vijaya Bank said.