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Banks see stable loan rates, profits in near term

Banks see stable loan rates, profits in near term
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First Published: Mon, Mar 22 2010. 03 10 PM IST
Updated: Mon, Mar 22 2010. 03 10 PM IST
Mumbai: Indian banks see stable lending rates and profits in the near term despite an unexpected repo rate hike by the central bank on intensifying inflationary pressures, bankers said, though short-term lending rates may go up.
The Reserve Bank of India’s (RBI) move would, however, lead to further withdrawal of special loan rate schemes and higher deposit rates going forward, analysts said. Late on Friday, the RBI raised the repo rate -- the rate at which it lends to banks -- to 5.00% from 4.75% and the reverse repo rate, the rate at which it absorbs funds from the system, to 3.50% from 3.25% with immediate effect.
At 2.50 pm, the BSE Bankex fell 0.68% to 10,361.69 points with top lenders State Bank of India and ICICI Bank down between 1-1.8% in the 30-share BSE index Sensex that fell 0.73%.
“We are not likely to see immediate hike in lending rates. There is enough liquidity in the market till now,” said BA Prabhakar, executive director at state-run Bank of India.
“May be some short term corporate products may be expensive but it will not effect regular working capital loans,” said JP Dua, chairman and managing director at Allahabad Bank.
Bankers, however, said repo and reverse repo rates would not substantially effect bond yields and profitability.
“It depends from bank-to-bank but I don’t think it will impact profitability much,” said Bank of Baroda’s executive director R Bakshi.
United Bank of India executive director TM Bhasin said inflationary pressures may ease with the advent of the rabi crop.
“I don’t also see any impact on the profitability with just a 25 basis point hike in repo rate,” Bank of India’s Prabhakar said.
However, if inflation rises further, banks would have to raise deposit rates leading to overall rise in rates, he said.
Analysts say some private sector and public sector banks have withdrawn special loan rates and more such measures would follow.
“The move by RBI should be taken as an indicator of underlying credit demand going forward,” Amit N Rane, analyst at Angel Broking, said.
“In short term it will be negative for the stocks as cost of funds would go up but banks would be able to pass it on to the customers. In the long term we remain positive to the sector,” he said.
There would not be much of an impact on lending rates owing to excess liquidity in the system, but there would be withdrawal of teaser loan rates for home and auto sectors, said another analyst at a Mumbai-based brokerage.
There would be some deposit rate hikes although the lending rate hike may come towards the end of first quarter of next fiscal. Banks are sufficiently cushioned to handle the impact on bond yields in the short run and there would be no impact on profitability, the analyst added.
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First Published: Mon, Mar 22 2010. 03 10 PM IST
More Topics: Banks | RBI | Repo Rate | Reverse Repo Rate | Loan |