FM sees no rate hike by banks; lenders differ

FM sees no rate hike by banks; lenders differ

New Delhi: Finance minister Pranab Mukherjee on Saturday exuded confidence that banks will not raise their interest rates in response to RBI’s tight monetary policy even as lenders indicated that they will be upping their lending and deposit rates.

“No I don’t think so. Banks are fully aware of it and they have taken note of it and they have adjusted their plans accordingly," Mukherjee told reporters when asked whether RBI’s tight monetary policy will affect interest rates.

However, a number of PSU banks have already raised their deposit rates and lending rates for existing borrowers and few other lenders have indicated that they will be doing it soon.

Country’s largest lender SBI chairman OP Bhatt said, “I think there is an upward bias (on interest rates) that will take place."

He said most of the banks have so far raised interest rates in the range of 25-50 basis points. The highest has been in the case of PNB, to the extent of 75 basis points, Bhatt said.

“So I would put it (hike in interest rates by PNB) at the extreme end. It cannot be more than that. It has to be less than that," Bhatt said.

To a question as which sector will see rise in interest rates he said, “that would depend on bank to bank and their strategy."

The country’s second largest PSU lender, Punjab National Bank (PNB), raised its benchmark prime lending rate (BPLR) by 75 basis points to 11.75%, Bank of Baroda, Corporation Bank and Oriental Bank of Commerce increased it by 50 basis points each to 12.50%.

In addition, Union Bank of India and IDBI upped their BPLR by 50 basis points each to 12.25% and 13.25%, respectively.

However, the country’s largest lender, SBI, has so far not hiked its BPLR.

Another PSU lender said that further increase in interest rates would depend on liquidity condition and credit offtake in the coming months.

“Further increase in rates will depend on liquidity position in the system and how advances pick up after September," Bank of Maharashtra CMD Allen C A Pereira said.

The RBI, in its monetary review on 27 July, raised the short-term borrowing (reverse repo) rate by 50 basis points and lending (repo) rate by 25 basis points.

It, however, kept the cash reserve ratio -- the portion of deposits banks are required to park with the central bank in cash -- unchanged.