Home, auto loans to become more expensive, says bankers

Mumbai (PTI) - The Reserve Bank of India's
decision to hike key policy rates by 25 basis points will make
auto, home and other loans more expensive, as lenders will
have choice but to pass on the additional cost to consumers.
The rate hike is expected to be passed on to consumers,
said ICICI Bank Managing Director Chanda Kochhar.
"The RBI steps are on expected lines as inflation still
remains stubborn and poses a serious threat to growth," Union
Bank of India Chairman M V Nair told PTI here.
He also said the bank will pass on the rate increase to
customers "as credit growth has so far been robust this
quarter". However, he refused to specify how soon the base
rate hike would be effected.
The RBI has raised the short-term lending (repo) rate by
25 basis points to 7.50 per cent and the short-term borrowing
(reverse repo) rate will move up by a similar margin to 6.5
per cent.
Subsequently, the interest rate under the Marginal
Standing Facility, an additional borrowing window, has gone up
to 8.5 per cent from the earlier level of 8.25 per cent.
"It will (25 basis point hike) put pressure on the
short-term deposit rates and subsequently on the lending
rate," said Indian Overseas Bank Chairman Director M Narendra.
However, the rate hike by banks may not be immediate, as
credit offtake has started moderating, he said.
Echoing a similar view, IndusInd Bank Executive
Vice-President Moses Harding said the rate hike will push the
shorter end of the rate curve with higher inversion into the
longer end.
Bank of Baroda Executive Director R K Bakshi, too, said
the RBI move was expected, as inflation has become a serious
threat to growth.
Bakshi also hinted at the possibility of a base rate hike
by his bank, saying though no automatic hike will be effected,
the bank will act according to the liquidity condition, which
he termed as comfortable as of now.
According to Punjab & Sind Bank Executive Director P K
Anand, there will not be any knee-jerk reaction from the
banks, as the rate hike was on expected lines.
IDBI Bank Executive Director R K Bansal said the market
was expecting the hike and this may not result in banks
increasing rates immediately.
In the last one-and-a-half months, several banks have
revised lending and deposit rates following the annual policy
announcement last month. Monetary transmission has been quite
strong, with 45 scheduled commercial banks raising their base
rates by 25-100 basis points after the May 3 policy.
Cumulatively, 47 banks raised their base rates by 150-300
basis points during the July, 2010-May, 2011, period, the RBI
said, adding that the higher cost of credit is restraining
credit growth. However, it still remains fairly high,
suggesting that economic activity is holding course.