In a move that will raise the cost of home, auto and other loans. Banks across are gearing up to hike their base and prime lending rates by 50-100 basis points (bps), following the Reserve Bank of India?s decision to increase its repo and reverse repo rates by 50 basis points to 7.25% and 6.25%, respectively, to curb surging inflation.
?Current elevated rates of inflation pose significant risk to future growth. Bringing them down, therefore, even at the cost of some growth in the short run, should take precedence,? said, D Subbarao, governor, RBI.
State-owned lender IDBI Bank eas first off the block on Tuesday increased its base rate and benchmark prime lending rate (BPLR), each by 50 bps, effective from May 5. While the new base rate for the bank is at 10%, its revised BPLR is at 14.5%. Moreover, the bank has increased its deposit rates in certain buckets by 25-50 bps.
Pratip Chaudhuri, chairman, State Bank of India (SBI) said that the hike in key rates by the RBI will be transmitted by increasing the bank?s lending rates .
?We will take a call by the month-end. Lending rates may go up by 25-50 bps,? he said. ?Banks? net interest margin (NIM) may be affected by 20-25 bps, but may not impact on profitability as we will pass it on to our borrowers.?
On the RBI hiking the regulated rate on savings bank deposits by 50 bps to 4%, Chaudhuri said he welcomed it as it will prove to be a good incentive for those just holding onto their cash.
Chaudhuri, however, qualified the statement saying that his view is ?contrary? to that of peers.
When asked of the impact on the bank?s cost of deposits, he said, ?encouraged by this, more people will bring in their savings money… I can visualise our average cost may come down because of the rise in savings (account).?
In order to maintain their net interest margins, Chaudhuri said, there will be a ?clamour? to access low-cost funds abroad going ahead.
?Today, the gap between the Indian interest rates and all foreign currency rates is widening. There will be a clamour for ECBs, what we can?t do here, we will make up elsewhere.?
On the RBI?s to increase the provisioning against certain categories of non performing assets (NPA), Chaudhuri said RBI has aligned the norms with international practices.
ICICI Bank MD and CEO said there will have 50-100 basis points (bps) impact on banks? cost due to RBI?s announcements like a 50 bps increase in repo rate.
?Most banks would maintain margins..a large part of this increase will have to be passed on in the form of an increase in lending rates,? said Chanda Kochhar, MD and CEO, ICICI Bank.
A 50 bps hike in savings rate that will translate into a 10-15 bps hike in cost of funds for a bank, higher provisioning requirements, and transmission of previous policy hikes.
“Interest rates are bound to go up between 50-100 basis points depending on the bank. If anybody is not expecting them to go up, then he is dreaming,? said Aditya Puri, MD & CEO, HDFC Bank.
On the additional provisioning norms introduced on non-performing assets, a majority of bankers said they do not see any impact on the banks? finances as almost all banks have already achieved a high provision coverage ratio at 70%.
?It is not going to change your provisioning substantially but whatever you have provided to achieve the 70% PCR will get backed up by a proper regulatory provisioning requirement,? KR Kamath, CMD, Punjab National Bank.
MR Nayak, executive director of Allahabad Bank, said that going by last year?s deposit figures the bank will have an additional burden of around R150-175 crore to take care of higher savings rate .
?Base rate for our bank as well as for the industry is likely to go up after today?s announcement from the RBI,? he said.
According to Bhaskar Sen, CMD, United Bank of India, the 50 basis point hike in savings rates will translate into an increase in the cost of funds by 12 basis points. ?Under such a situation banks will try to make up either by increasing the lending rates or by increasing transaction charges,? he said.
