SBI Chairperson Arundhati Bhattacharya said the bank management will be meeting this evening to take a call on both lending and deposit rate hikes.
When asked if banks don't pass on rate hikes how will the objective of monetary transmission happen, she said it will only happen when it is actually affecting the cost of funds.
"You have to look at inflation and what we are having to pay our depositors. On one side, depositors have to be given some return that makes some sense and on the other side we cannot give so much of return that our borrowers are unable to bear the pressure of rates. So, it is a call we have to take in the overall context," she said.
The Reserve Bank of India (RBI) in its Third Quarter Review of Monetary Policy today increased the short-term lending (repo) rate to 8 per cent from 7.75 per cent and indicated a pause in terms of further rate hikes.
"You should really watch the trend in inflation and in deposits which really impact our cost of funds, and therefore the lending rates. So, you cannot say something very quickly till we actually see what we need to do on the deposit rates as well," ICICI Bank Managing Director Chanda Kochhar told reporters.
Mortgage major HDFC's MD &CEO Aditya Puri merely said "rate hike is is a function of what happens to deposit cost and the demand for credit".
PNB Chairman and Managing Director K R Kamath said bankers are keeping things open but will wait and watch how forces in the market react to today's policy decision.
"It is not the question of the need or transmission. The point is that at what end we have pressure on interest rates on asset side, because of the stress what we are seeing in the asset side, should you increase the stress by increasing the rate of interest," Kamath said.
Bankers also discussed issues like management of distressed assets, vialibility of ATMs and handling of counterfeit notes with the central bank.
"While it is appreciated that there is cost increase that is happening, one need to find a balance between the customer convenience and the cost," Kamath said.
He said the the Indian Banks Association is working on the issue and based on the inputs from all the banks it will submit a paper to the RBI.
Federal Bank chief Shyam Srinivasan said though the rate hike is surprising, the current inflation readings has left it with not many choices.
"One of the key takeaways is RBI's guidance that further policy steps will be data dependent, and that we know clearly that RBI is looking closely at inflation sans food and fuel, will allow the market to expect consistent and predictable regulatory action.
Managing Director of ING Vysya Bank Shailendra Bhandari said "policy rates have been hiked as necessitated by an inflation targeting stance, periodicity of policy review has moved to a bi-monthly cycle going forward".
Lakshmi Vilas Bank Chief Executive KSR Anjaneyulu said the RBI had no option but to raise the repo rate to contain inflation caused by CPI index particularly because of services sector and industrial sectors impact on inflation.