RBI likely to hike policy rates: Union Bank

The Reserve Bank of India (RBI) is likely to raise key policy rates next month on account of continuing high inflation, a move that will put pressure on banks' lending rates, public sector lender Union Bank of India today said.

"The biggest concern is inflation. Food inflation is still high and we are witnessing pressure on core inflation also. We believe RBI will take measure to contain demand and we expect it to increase key policy rates on May 3, but by how much, it is difficult to say," Union Bank Chairman and Managing Director MV Nair told reporters here.

The RBI has already hiked its policy rates eight times since March, 2010, to suck in liquidity and tame inflation. Headline inflation has been above 8% since February last year.

The RBI's next quarterly review is slated for May 3 and many experts have already said that a mild hike is on the cards.

Asked if the RBI's hike in repo and reverse repo rates will impact banks' lending rates, Nair said: "This will impact the lending rates. But we will not go for any premature hikes. We will wait till May 3 before deciding upon it."

Nair added that Union Bank had increased its base rate by 50 basis points to 9.5% and hiked deposit rates to the tune of 75% after the apex bank went for an upward revision in policy rates during the last mid-quarterly review in March.

Union Bank also expects its core fee income, or earnings from products like overdrafts and account service charges, to go up by 25% this fiscal.

"For four fiscals ending 2009-10, core fee income grew by 36% on average. However, last fiscal, it was down to around 10%. We are offering lots of new products like insurance, mutual funds and so on and this financial year, we again expect a surge to around 25%," Nair said.

Meanwhile, Union Bank today entered into a Memorandum of Understanding with Kendriya Vidyalaya Sangathana (KVS) for centralised salary disbursement for employees of the education body across the country.

The bank has developed a customised web portal which provides a database on the salary details of all 56,000 employees of KVS by schools and regional offices.

Nair said the system is scalable and could be expanded to include scholarship disbursement and fee collections in the times to come.

Source: Business Standard