Friday, September 17, 2010

Banks to mostly hold rates this month

A day after digesting the Reserve Bank of India's mid-quarter monetary policy review, most bankers say they will hold their rates this month and review these in October, when festivals and the busy season set in, giving a clearer idea of the rise in credit demand.

"There is an upward bias in interest rates and inflation is a concern, which the RBI has addressed through a rate hike," said K R Kamath, chairman and managing director (CMD) of Punjab National Bank. "We will factor in cost of deposits in the present quarter to asses if there is a need to review the base rate. When the busy season starts, the credit growth is likely to pick up. We will have to see how the market reacts before taking a decision on interest rates.''

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While the Base Rate that was introduced from July 1 is due for review in October, bankers say a decision to raise lending rates will be based on several factors, not just on yesterday's RBI measure to increase its repo and reverse repo rates by 25 basis points and 50 bps, respectively.

"We will review our rates next month and will examine if we need to raise these," said S Sridhar, CMD of Central Bank of India. "Any change in our base rate will not be linked just to the RBI announcement. There are several factors such as competition in the market, alternative modes of borrowing and demand for loans, among others. Calculating the base rate is not a simple process. We have already increased our deposit rates."

Bankers say growth in credit was a modest 3.3 per cent between April and August-end and signals of a rise in demand will be clearer in a few weeks.

"The transmission typically takes two to three months," said D L Rawal, CMD of Dena Bank. "The cost of deposits may increase in the quarter to December but deposit rates have just been raised in July-August. The credit offtake is not there right now and may pick up in the next quarter with a good monsoon, economic recovery and festival demand. We hope to review our lending rates in January."

It was the fifth increase in repo rates this year, as the RBI targets to rein in what it describes as 'high inflation'.

"The base rate will be reviewed automatically in October and, may be, raised 25 to 50 basis points for most banks because of the rise in cost over the past few months and it hasn't got triggered by yesterday's policy,'' said Ashish Parthasarthy, treasurer at HDFC Bank. "Retail segment rates were increased last month."

Kolkata-based Allahabad Bank plans to review rates next week and may decide to increase its lending ones, said CMD J P Dua.

Corporation Bank may review lending rates next month, said CMD R N Pradeep, saying it may or may not raise these. Mumbai-based Saraswat Bank will decide on reviewing its rates next month, said S K Banerji, managing director. The Chennai-based City Union Bank plans to review its lending rates in four to six weeks, said N Kamakodi, executive director.

Kolkata-based United Bank of India may raise its lending rate next month by about 25 bps, said executive director S L Bansal. Bangalore-based Vijaya Bank may raise lending rates next month by about 25 bps, said CMD Albert Tauro.

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