Home, auto loans to cost more: Bankers

Mumbai: Banks are set to increase lending rates by another half a percentage point, leaving a hole in the pocket of borrowers, after the Reserve Bank sharply raised key policy rates.

EMI (Equated Monthly Installment) for home loan of a 20-year tenure would go up to Rs 1,066 from Rs 1,032 per lakh at present as banks are set to revise their lending rates.

For a three-year auto loan, the EMI would increase from Rs 3,289 to Rs 3,311 per lakh, according to estimates by experts.

Country's largest lender State Bank of India's Chairman Pratip Chaudhuri said, "(Rising) input cost would be passed on to the customer."

On the deposit rates, Chaudhuri said they may not go up sharply in the long end. But short-term rates would see an increase as banks are competing with mutual fund schemes which give 8.5-8.75 percent returns.

"I see increase in short-term rates a distinct possibility. There is an interest in the short-term because government is borrowing more at the short-term," he said.

Country's biggest private sector lender ICICI Bank's CEO and Managing Director Chanda Kochhar said, "Going forward, banks would review the movement in funding costs and effect further increases in lending rates."

Private sector Yes Bank has already announced upward revision in the lending rates by 50 basis points.

"The hike is more than expected and it will push interest rates (lending and deposits) up by upto 50 basis points," Oriental Bank of Commerce Executive Director S C Sinha said.

The RBI has raised the short-term lending (repo) rate by 50 basis points to 8 per cent and the short-term borrowing (reverse repo) rate will move up by a similar margin to 7 per cent.

Since March 2010, the RBI has raised its short-term lending rate (Repo) by 325 basis (3.25 percentage)points to tame inflation.

"Will the interest rates go up?.. I would say yes. By how much, I don't think anybody will be in a position to tell you at this stage," HDFC Bank Managing Director Aditya Puri said.

SBI hinted a further slowdown in credit offtake saying, in the fast rising interest scenario, he may choose to go slow on balancesheet growth to protect profitability as in such a scenario, there are more risks to asset quality.

To a query on how he would manage profitability in the event of a fall in credit growth, Chaudhuri said, "from G-secs and from bond issuance...we will scale down our growth."

BoB Chairman and Managing Director M D Mallya said "going forward the expectation perhaps for credit growth is 18 percent, but one has to wait and see if credit demand is there. Demand what we have seen till now is with reference to the existing projects. But the new projects are not being implemented, not being taken up. Credit growth will be muted."

RBI Governor appreciated the fact that bankers have promised quick policy transmission to help RBI achieve its targetted objective of anchoring inflationary expectation.

The bankers have said that the interest situation is going to be challenging but their response would be rapid, indicating that policy transmission process would be faster than in the previous months, Governor Duvvuri Subbarao told reporters during his customary post-policy press meet.

The Governor also took note of the bankers' worries on possible increase in bad loans in the rising interest rate regime. But he was quick to add that "no banker has told us that there is any systemic risk as of now."

Subsequent to today's policy rate hike, the interest rate under the marginal standing facility, an additional borrowing window introduced from the annual policy on May 3, has gone up to 9 per cent from the earlier level of 8.5 per cent.

This is the 11th time since March 2010, that the RBI has raised the interest rate to check inflation, which is currently ruling at 9.44 per cent.

Source: Financial Express