Loans to pinch more as lending rates set to go up soon

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Home, auto and corporate loan rates are likely to rise soon by up to 0.50 per cent in tune with the hike in key policy rates by the Reserve Bank, leading banks including SBI and ICICI Bank said today.

The country's largest lender SBI also welcomed hike in interest rate on savings accounts by 50 basis points.

State Bank of India Chairman Pratip Chaudhuri told reporters here that a hike of '25 to 50 basis points' in the next three months on the lending side is 'a reasonable guess' and the rise in interest rates for the bank "will get passed on" (to customers).

ICICI Bank MD and CEO Chanda Kochhar said there will have 50-100 basis points (bps) impact on banks' cost due to RBI's announcements like a 50 bps increase in repo rate, a 50 bps hike in savings rate that will translate into a 10-15 bps hike in cost of funds for a bank, higher provisioning requirements, and transmission of previous policy hikes.

"Most banks would maintain margins...a large part of this increase will have to be passed on in the form of an increase in lending rates," she said.

"Interest rates are bound to go up between 50-100 basis points depending on the bank. If anybody is not expecting them to go up, then he is dreaming," HDFC Bank Managing Director Aditya Puri said.

IDBI Bank Executive Director R K Bansal said the increase in lending rates could be between 25 basis points and 50 basis points, depending on individual banks.

The Reserve Bank today hiked its repo rate by 0.50 per cent to 7.25 per cent besides increasing the interest rate on savings account deposits to four per cent from the earlier 3.5 per cent.

On RBI hiking the regulated rate on savings bank deposits by 50 bps to 4 per cent, Chaudhuri said he welcomed it as it will prove to be a good incentive for those just holding onto their cash.

Chaudhuri, however, qualified the statement saying that his view is "contrary" to that of peers.

When asked of the impact on the bank's cost of deposits, he said, "encouraged by this, more people will bring in their savings money ... I can visualise our average cost may come down because of the rise in savings (account)."

In order to maintain their net interest margins, Chaudhuri said, there will be a "clamour" to access low-cost funds abroad going ahead.

"Today, the gap between the Indian interest rates and all foreign currency rates is widening. There will be a clamour for ECBs, what we can't do here, we will make up elsewhere."

Bank of Baroda Chairman M D Mallya, who also heads the Indian Banks Association, said the issue of deregulating savings rates was not discussed during the customary post-policy meet between the RBI Governor and bankers.

On the additional provisioning norms introduced on non-performing assets, a majority of bankers said they do not see any impact on the banks' finances as almost all banks have already achieved a high provision coverage ratio at 70 per cent.

"It is not going to change your provisioning substantially but whatever you have provided to achieve the 70 per cent PCR will get backed up by a proper regulatory provisioning requirement," Punjab National Bank Chairman and Managing Director K R Kamath said.

On microfinance and the RBI's move to largely accept the recommendations of the Malegam Committee, Central Bank of India Chairman S Sridhar said banks had largely factored in the changes but welcomed RBI's thrust on engaging more with the ultimate borrower articulated in the policy.

SBI Chairman Chaudhuri said with investments in liquid mutual funds capped at 10 per cent of net worth, the treasuries of banks will have to look at alternative channels of investing money.