Home, auto loans to cost more as RBI tightens policy: Bankers

Home, auto loans to cost more as RBI tightens policy: Bankers

Mumbai: Home, auto and corporate loans have to become more expensive, as the Reserve Bank has raised key rates for the fourth time this fiscal, bankers said on Friday.

Banks need to pass on the hike to customers as their cost of funds has gone up, Indian Overseas Bank chairman and managing director M Narendra told PTI.

“I believe banks would wait till the month-end before taking a call on an interest rate hike," he said.

The RBI has raised the short-term lending (repo) rate by 25 basis points to 8.25% and the short-term borrowing (reverse repo) rate will move up by a similar percentage to 7.25%.

Subsequently, the interest rate under the Marginal Standing Facility, an additional borrowing window for banks, has gone up to 9.25% from the earlier level of 9%.

This is the 12th time since March, 2010, that the RBI has raised key interest rates to check inflation, which is currently ruling above 9%.

“The rate hike is on expected lines and would result in interest rates, both deposit and lending, going up," Oriental Bank of Commerce executive director S C Sinha said.

Echoing similar views, Corporation Bank chairman and managing director Ramnath Pradeep said, “Banks will have to raise rates, but when and how will be decided by individual banks, depending on their asset liability conditions."

According to Punjab and Sind Bank executive director P K Anand, the impact of the policy rate hike will take effect with a time lag.

The banks, he said, will maintain the current rates at least for the next 15 days and take a call on revising them after ascertaining credit demand.

Earlier this week, State Bank of India chairman Pratip Chaudhuri had said if the RBI raised interest rates, banks would have to pass on the increase to customers.

“It has to be financial transmission," Chaudhuri had said.