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Banks to take call on rate hike soon

BS Reporter  |  Mumbai 

Banks are likely to take a final view on raising interest rates on loans as well as deposits by the end of this week or early next week.
The biggest pressure is expected to be felt by home loan borrowers as banks seek to target the customer segments that enjoy rates below prime lending rates (PLRs).
Home loan borrowers are the most vulnerable because the weighted average interest rate for this segment is around 9 per cent, against the weighted average of around 13 per cent for the aggregate loan portfolio of the banking sector. The weighted average for other personal loans was around 15 per cent, banking analysts said.
The expectations of further hikes in lending and deposit rates have been fuelled by further monetary tightening by the Reserve Bank of India (RBI).
"Interest rates, both lending and savings, are headed upwards. The bank will look at the evolving market trend in the coming week and decide on the course of action," Kalpana Morparia, ICICI Bank joint managing director, told Business Standard last weekend.
Asset-liability committees of most banks are expected to review their interest rates this week, with the State Bank of India having already set the tone by a 25-75 basis point hike in deposit rates.
"All loans, which are contracted at below prime lending rates, will see upward revision," said Bank of Baroda Executive Director V Santhanaraman.
Rajeev Malik, Singapore-based head of Asia economic research at JP Morgan Chase Bank, said the motivation for the 50 basis point hike in cash reserve ratio to 5.5 over the next two fortnights was to tighten liquidity conditions to moderate the frenetic pace of bank lending and also to manage expectations of higher inflation.

First Published: Mon, December 11 2006. 00:00 IST