Come October, consumers will pay more on home and auto loans as bankers are expected to up lending by anywhere between 25 and 50 basis points. One basis point is equal to one hundredth of a percentage. This follows the Reserve Bank of India?s (RBI) move on Tuesday to hike its key policy rates ? repo rate (the rate at which it lends to commercial banks) by 25 basis points (bps) to 6% and reverse repo rate (the rate at which banks park excess cash with RBI) by 50 bps to 5%. Banks are also expected to increase deposit rates since the growth rate of deposits has been rather sluggish at just about 14%.

?RBI move clearly signals an upward bias on interest rates. We will decide on a possible revision in rates in our asset and liability committee (ALCO) meeting,” said SS Ranjan, chief financial officer, State Bank of India, adding, ?The quantum of the rate hike will depend on how the cost of funds and demand for credit pans out.”

MV Nair, chairman and managing director, Union Bank of India, said, ?We expect credit demand to pick up in October as the busy season kicks in and there will be pressure on liquidity which will lead to rise in interest rates. We will review our base rate and benchmark prime lending rate in October.”

Dipak Gupta, executive director, Kotak Mahindra Bank, added, ?Interest rates will move up and we may increase our interest rates both deposits and lending to 25 basis points.”

Ashish Parthasarthy, head (treasury), HDFC Bank, said, ?There is every possibility that base rate will be revised to the extent of 25-50 basis points.” There would be another round of deposit rate hikes of 25 basis points across the board but not immediately.?

However, Keki Mistry, vice-chairman & CEO, HDFC, does not see any significant impact on long term rates following the 25 bps increase in rates. ?Immediately there will be no increase in rates as the market had factored in a 25 basis point hike in repo rate. I expect RBI to now take a pause as inflation is easing,” said Mistry.

The housing finance company ? which has been facing stiff competition from public sector banks like State Bank of India ?has introduced a dual rate home loan product. The scheme bears a fixed interest rate of 8.50% per annum up to March 31, 2011 and of 9.50% pa for period between April 1, 2011 and March 31, 2012. The rest of the loan tenure is at a floating rate.

PC John, executive director, Federal Bank, said, ?Overall interest rates are likely to go up. We may increase our deposit and lending rates to the tune of 25-50 basis points. At the same time, if credit demand does not pick, it would not be feasible to hike interest rates upfront.”

RVS Sridhar, president and head, global markets, Axis Bank, said, ?We believe, any further rise in deposit and lending rates will be limited. Deposit rates already moved up in anticipation of RBI rate hikes in the last 1-2 months. It may not be necessary to hike rates immediately.” The question of increasing lending rate comes in when our cost of funds goes up. However, we need to keep watch on industry trends and if needed, would revise interest rates,” added Sridhar.

MD Mallya, chairman and managing director, Bank of Baroda also said his bank will review the base rate by the end of the quarter.

To rein in the rising inflation the central bank has hiked policy rates for the fifth time this year in its first mid-quarter review of the monetary policy. ?Inflation remains the dominant concern in macroeconomic management,? RBI said in its press release. Wholesale price base inflation rose to 8.5% in August from a year earlier, easing from July?s 9.8% gain, the commerce ministry said on September 14. The hike in rates will lead to a rise in cost of funds for the banks and eventually makes loans expensive. Bankers expect a 25-50 basis point hike in lending rates when the base rate is reviewed in October.

Commercial banks loans to corporates and individuals, slipped little below 20% for the fortnight ended August 27, 2010, the target set by the Reserve Bank of India in 2010-11. In August, most commercial banks had hiked their deposits and lending rates in the range of 25-75 basis point. This came after the central bank on July 27 hiked the repo rate by 25 basis points to 5.75% and the reverse repo rate by 50 bps to 4.50%.