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Banks rethink loan strategy after RBI increases key rates

Banks rethink loan strategy after RBI increases key rates
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First Published: Mon, Apr 02 2007. 12 04 AM IST
Updated: Mon, Apr 02 2007. 12 04 AM IST
A day after ICICI Bank upped its lending rates following the key rate hikes by the Reserve Bank of India (RBI), several lenders were mulling their response even as IndusInd Bank hinted at a possible rise this week.
Two private sector-players—Yes Bank and ICICI Bank—hiked their prime lending rates (PLRs) over the weekend in response to RBI’s move to hike repo and cash reserve ration (CRR) rates on Friday. “The days of absorbing increasing cost of funds are over. RBI’s move will definitely impact our cost of funds,” IndusInd managing director Bhaskar Ghose said.
The bank will take a “balanced view” so that its business isn’t affected by any sharp rise in its lending rates, he said. “Some banks have already hiked their rates. We will see what the larger banks do,” he said, adding, “while we have no intention of absorbing the cost of funds, we will take our decision next week.”
“You can certainly expect a minimum 0.25% hike but it could go up to 0.50%.”
IDBI Bank deputy managing director Jitender Balakrishnan, while admitting that the cost of funds would go up, however, said the public sector lender would take a decision on hiking its lending rates only after “discussing the matter.”
He said the hike will definitely impact our cost of funds. “But whether we increase our lending rates or absorb the costs will be decided only at our board meet.”
Decisions to hike rates are taken at the board level and IDBI Bank’s board is not scheduled to meet till the end of April, he said, indicating that any possibility of an immediate response by the bank was remote.
State Bank of India, the country’s premier lender, too has not yet taken a decision on its lending rates. “We are still estimating the impact on our balance-sheet,” SBI managing director Yogesh Agarwal said. It is expected to discuss its lending rates over 10 days.
Indian Bank’s executive director M.S. Sundararajan said his bank “would not be reacting by jacking up rates.”
Terming RBI’s move as a “quantitative credit supply control technique,” Sundararajan said his bank’s liquidity position was comfortable.
“We just recently came out with our IPO (initial public offering),” he said. The bank would wait and watch how the situation evolves before taking any decision on its lending rates, he said. “We feel there is no need to react immediately.”
Bank of Maharashtra’s chief M.D. Mallya said while the cost of funds will definitely have to be factored in, it would analyse the situation before taking any call on its current rates.
“We will take a decision, probably in the next 10 days or so,” he said.
While bankers are unanimous that their cost of funds would go up, the quantum of their lending rate hikes and timing are still to be decided by most of them.
It is the private-sector lenders who have kick-started the process of increasing PLRs. Public sector banks may not, however, immediately jump onto the bandwagon.
However, as banks analyse the impact of RBI’s move on their balance sheet, the latest round of key rate hikes could well force them to pass on some of the burden of the rising cost to their customers.
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First Published: Mon, Apr 02 2007. 12 04 AM IST
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