Home, auto and consumer loan rates are unlikely to move up in the near future despite a 0.25 percentage points hike in the key policy rates with bankers on Tuesday assuring that they will not make loans dearer anytime soon as liquidity is sufficient in the system.
Top bankers like the State Bank, ICICI Bank, HDFC Bank, Union Bank and Bank of Baroda, among others said shortly after the RBI policy announcement that none of them are planning any hike in the lending rates in the near—term.
“Whatever has been done in the policy has reduced the supply. So definitely there is an upward bias in rates. As credit demand increases, there will be a demand—supply gap, and then there is a possibility of interest rates going up,” SBI chairman O.P. Bhatt said.
Mr. Bhatt further observed the Reserve Bank has signalled its rising concern on the runaway inflation that is hovering near double—digit level, reflecting the ballooning food and fuel prices.
Shifting its policy focus from growth to inflation, RBI on Tuesday hiked repo and reverse repo rates (overnight lending and borrowing rates of banks) and cash reserve ratio or CRR (deposits that banks keep with RBI) by 0.25 per cent each.
The RBI hiked the repo, reverse repo to 5.25 per cent and 3.75 per cent, respectively, while the CRR to 6 per cent in line with analysts expectations to suck out Rs. 12,500 crore from the system.
The country’s largest private sector lender ICICI Bank chief executive and managing director Chanda Kochhar shared a similar view saying, “during the year I do see the lending rates going up but I don’t see any immediate impact on rates as of now.”
These comments assume significance as millions of common borrowers were worried that a tightening in the rates could make their borrowings dearer, thus hitting their savings, especially in the current high inflation scenario.
The country’s second largest private sector lender HDFC Bank also said it is not considering any increase in its lending rates soon. “Lending rates will depend on the demand—supply and cost of funds. In the near—term, there will not be any significant increase in the rates. Our rates will depend on demand—supply and the cost of funds,” its managing director Aditya Puri said, adding however, it has seen pressure building on its margins with the cost of funds moving up.
State—run Union Bank of India chairman and managing director and Indian Banks Association chairman M.V. Nair said sufficient liquidity is expected to remain in the system over the next six months despite the RBI action.
“Considering that around Rs. 1,00,000 crore liquidity in the system now, even if RBI sucks out money through 25 basis points hike in CRR, I think there will be enough liquidity in the next six months,” Nair said, adding banks are confident of achieving at least 20 per cent credit growth this fiscal.
Another public sector lender Central Bank of India executive director Arun Kaul said there is no surprise in the policy as RBI action was factored in by the market. “There would not be any impact on interest rates and status quo will be maintained,” he added.
Announcing the policy measures today, the apex bank pegged GDP growth in FY11 at 8 per cent and wholesale inflation at 5.5 per cent compared to 10 per cent now, indicating that it’s clearly optimistic about the health of economy moving ahead.
As per the RBI quarterly statistics on deposits and credit of scheduled commercial banks released yesterday, annual credit growth was 12.2 per cent——half the pace it recorded last year.
“I don’t see interest rates going up before July. At this point, there is abundant liquidity in the system and liquidity is coming from overseas as well,” Yes Bank managing director Rana Kapoor said.
The policy action would result in cost of funds going up which would be absorbed by the banking system. There would be a gradual transmission of policy action on borrowers depending on credit off-take during the course of the year, Mr. Kapoor added.
Royal Bank of Scotland country executive Meera Sanyal also said today’s policy action will have limited impact as there is no dearth of liquidity in the system.