The banking system as a whole will see an upward bias on interest rates and the tightening of liquidity. Already in the last one month alone, interest rates on fixed deposits have gone up by over 100 bps. The changes in this credit policy will catalyse the process of hardening of interest rates, said V Vaidyanathan, executive director, ICICI Bank.

Private sector YES Bank has hiked the PLR by 50 bps to 14% effective February 1, 2007. Its portfolio exposure to the realty sector at around 8-9% only is also being repriced, effective February 1, 2007.

“On the home loan front last week we had communicated to our customer that we will be raising the interest rates with effect from February 20. Our retail lending rates or referral rates have increased from 11% to 11.75%, while the fixed rates have increased from 11% to 11.5%,” said Nicholas Winsor, head-personal financial services, HSBC.

However, commenting on the interest rates Keki Mistry, managing director, HDFC, said, “We do not see any need for change in the interest rates immediately. “

Bhaskar Ghose, managing director, IndusInd Bank, said, “We had raised our benchmark prime lending rate (BPLR) to 15% in January 2007. Hence, we will not raise our BPLR, but will adjust the margins over the BPLR.”

“Credit growth has slightly slowed down in January 2007, due to earlier efforts of the central bank. The measures taken by the RBI in its quarterly review like increasing the repo rate by 25 basis points to 7.5% was expected by the market. It is clear that the regulator is disincentivising credit growth to certain sectors and hence loans in such areas will be expensive,” said SA Bhat, executive director, Uco Bank.

According to AC Mahajan, chairman and managing director, Allahabad Bank, “Rate consideration is a dynamic decision and not guided by hike in the repo rate. It depends on the liquidity and cost factors prevailing at any given point of time.”

In the coming financial year, however, a rapidly improving fiscal situation, and possibly easing inflation concerns should allow some relaxation on the liquidity front,” said Gunit Chadha, managing director & CEO, Deutsche Bank, India.

“Inflation will probably come down due to base effect,” said Samiran Chakraborty, chief economist, ICICI Bank.