Mumbai: Retail and corporate credit, including home and auto loans, are set to become costlier after the Reserve Bank of India’s (RBI) latest increase in the key rate, bankers said on Tuesday.

“Banks are likely to increase both lending and deposit rates following the RBI action. There could be a minimum 25- basis point rise in lending rate," Oriental Bank of Commerce (OBC) executive director S. C. Sinha told the news agency.

A pedestrian walks out of The Reserve Bank of India (RBI) building in Mumbai. Photo: AFP

With present round of rate hike, banks would have to readjust rates in line with increase in cost of funds, Sinha added.

The RBI has raised the repo rate by 25 basis points to 8.5% and reverse repo will move up by a similar percentage to 7.5%.

Repo is the short-term rate at which the RBI lends to banks, while reverse repo is rate at which it gets funds from banks.

The central bank has hiked the policy rate five times this fiscal. In the last-one-and-a-half months alone, it has raised the key rate (repo) by 50 basis points.

Echoing Sinha’s views, IDBI Bank executive director R. K. Bansal said “lending rate would certainly go up on two counts - one RBI has raised policy rate and second deregulation of deposit rate on savings bank accounts".

Cost of funds will go up for banks and some increase will be passed to customers, Bansal said, adding that the rate hike could be in between 25-50 basis points depending on the liquidity positions of each bank.