Banks line up rate hikes

Mumbai, Oct 29 | Updated: Oct 30 2004, 06:12am hrs
A slew of banks are mulling interest rate hikes on their retail products as well as deposits. Among the major players who are likely to hike their rates are State Bank of India (SBI), ICICI Bank, Bank of India, Andhra Bank and Corporation Bank.

The Reserve Bank of India (RBI) has indicated an end to the soft interest rate bias and rate hike on banks liabilities and assets is a matter of time, feel bankers.

FE talked to a cross-section of bankers across the industry, and there was an uninamity in their views about the direction interest rates would now take. Everybody is now watching for the right trigger to raise rates.

We are keeping a watch on the market. To keep in tune with the market developments, we may have to hike interest rates, ICICI Bank executive director Chanda Kochhar told FE. However, she declined to comment on the timing and quantum of hike.

A senior official from the countrys largest commercial bank, State Bank of India, said: There can be adjustments in short-term deposit and lending rates. But competition in the market may delay that.

Housing Development Finance Corporation (HDFC) and other housing finance companies are also planning to increase their rates by around 25-50 basis points, following the RBIs move to increase the risk weightage on home loans by 25 basis points.

Deepak Parekh, chairman of Housing Development Bank of India (HDFC), said interest rates on housing loans will go up with rising yields on government securities. The hike may come once the festive season is over.

However, Corporation Banks chairman and managing director, K Cherian Varghese, said that the 25 basis points increase in risk weightage on housing and consumer credit may prompt a marginal rise in interest rate, but this may not take place because of intense competition.

Banks will need to garner more resources as healthy credit off-take is taking place. For this, deposit rates at the short-end may have to be revised, said Andhra Bank chairman and managing director, TS Narayansami.

Said Mr Narayansami, Interest rates on assets and liabilities may have to be realigned in response to the 25 basis points hike in the repo rate.