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Uday Kotak, Managing Director and Chief Executive Officer, Kotak Mahindra Bank on Wednesday said the Reserve Bank of India's (RBI) surprise move to hike repo rate reflects that the central bank is taking inflation and inflationary expectations very 'seriously'.

The veteran banker expects a 100 basis points repo rate hike in the current financial year.

Speaking to reporters, Kotak said, "It was pretty clear that the wolf of inflation is getting more entrenched. And therefore, there was clearly a need to move. I read this (repo rate hike) as a very strong message by the RBI that they're taking the point on inflation and inflationary expectations seriously and you cannot allow the wolf to get deep in it and then becomes that much trouble to get the wolf out."

He added as the increase in repo rates get priced into deposit rates, MCLR-based loans will gradually get repriced. The loans linked to repo rate too will get repriced.

On impact of the rate hike on the bank's book, the CEO of Kotak Mahindra Bank said, "Our book is the largest in repo rate benchmarked, followed by MCLR-based benchmark. We have the smallest fixed rate loan book. Impact for us to be able to pass on appropriately based on RBI pricing is fair and reasonable."

The RBI raised its main lending rate off record lows in a surprise move to contain rising inflation, shocking markets and pushing the benchmark 10-year bond yield to its highest levels in three years.

The RBI raised the repo rate, the rate at which it lends to banks, by 40 basis points to 4.40%, in its first change in the rate in two years and its first rate hike in nearly four years.

The central bank also raised banks' cash reserve ratio (CRR), or proportion of deposits that banks need to set aside with the RBI as cash, by 50 basis points to 4.50% effective from May 21.

On LIC IPO

Speaking on the initial public offering (IPO) of insurance giant Life Insurance Corporation of India (LIC), which opened for subscription today, Kotak said the retail investors' response on the first day of the issue was one of the most heartening things.

"LIC is a very strong brand in the minds of every investor. When you have such a strong brand and a national franchise of the scale and size of LIC, I am very happy with the retail investors' response which has come today," Kotak added.

LIC's public offer saw the policyholders' portion being oversubscribed on the first day itself on Wednesday, though overall subscription stood at 67%.

The government aims to generate about 21,000 crore by selling 3.5% stake in the insurance behemoth.

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