Banks on a rate-hike spree after Mint Road action

The Reserve Bank of India's message to increase lending rates in the system and control inflation seems to have found a ready audience in banks.

Since the central bank’s repo rate hike on Tuesday, at least five banks have raised their base rates and benchmark prime lending rates by a minimum of 50 basis points (bps).
IDBI Bank has raised its base rate to 10% and BPLR to 14.5%; Punjab National Bank to 10% and 13.5%; Yes Bank to 9.5% and 19%; Bank of Maharashtra to 10% and 14.25%; Oriental Bank to 10% and 14.25%, respectively.

“The increase in base rate and PLR will enable the bank to fully absorb the increased costs on account of rising interest rates,” Yes Bank said in a statement. The central bank also raised interest rates on savings bank deposits by 50 bps for the first time since 2003.

“The impact of the savings rate hike on banks’ margins could be negative, unless banks pass on the higher cost to borrowers… charge higher fees for transactions, require higher account balances,” Goldman Sachs said in its report post the annual monetary policy.

Banks across the board are expected to raise lending rates after their respective asset liability committee meetings.
Asked if banks at large would be looking to pass on costs to customers, T M Bhasin, chairman and managing director of Indian Bank, said, “That is there. It is the prescription of the policy.”

“The overall message from the RBI is that lending rates have to go up in the system. The bankers are taking a hint from it. We think that 50 bps hike in lending rates is something that will happen across the board,” said Vaibhav Agarwal, vice-president - research with Angel Broking.

Although the rate hikes have followed the regulator’s move for now, further rate hikes would also depend on the strength of demand, said Nitin Kumar, deputy vice-president, Quant Broking. “Going further, it would be a function of the credit off-take also. If the credit demand sustains and the corporates are able to absorb the rising cost of funds, then we will see more lending rate hikes.”