The Telegraph
Wednesday , January 29 , 2014
CIMA Gallary

Banks to wait and watch

RBI governor Raghuram Rajan with deputy governors H.R. Khan (left), K.C. Chakrabarty (second from left) and Urjit Patel (right) in Mumbai on Tuesday. (PTI)

Mumbai, Jan. 28: The Reserve Bank of India’s decision to hike the repo rate by 25 basis points today may not immediately lead to a rise in lending rates.

The surprise move by RBI governor Raghuram Rajan has led to apprehensions that banks may pass on their increased borrowing cost to customers in the form of higher lending rates.

However, the chiefs of leading banks said they would wait and watch the trend in inflation and deposit rates before taking a call.

They added that the interest rates on car, home and corporate loans would go up only if the cost of funds rose and it was wrong to assume that an increase in the repo rate would directly translate into the higher cost of borrowings.

Bankers maintained that with the liquidity in the system at a comfortable level and credit growth lagging deposit growth, there was no immediate reason for hiking deposit rates.

SBI chairperson Arundhati Bhattacharya said that though the bank’s asset-liability committee would meet shortly to take a call on the lending and deposit rates, any changes would happen if it affected the state-run bank’s cost of funds.

“You have to look at inflation and what we are having to pay our depositors. On one side, depositors have to be given some return that makes some sense and on the other we cannot give so much of return that our borrowers are unable to bear the pressure of rates. So, it is a call we have to take in the overall context,” she said.

Chanda Kochhar, managing director and chief executive officer of ICICI Bank, said the trend in deposit rates, which impacts a bank’s cost of funds, and its lending rates, needed to be watched.

“You cannot say something very quickly till we actually see what we need to do on deposit rates as well,” she said.