Home, auto loans to cost more as RBI tightens policy: Bankers

Last Updated: Tuesday, May 3, 2011 - 13:40

Mumbai: Home, auto and corporate loans are likely to cost more, with the Reserve Bank raising key policy rates by half a percentage point, bankers said Tuesday.

"I think banks do not have any other option but to increase rates. It could be 25 basis points or 50 basis points, depending on individual banks," IDBI Bank Executive Director R K Bansal told an agency.

Since the cost of funds has gone up, the banks would have to review their rates, he said.

Oriental Bank of Commerce Executive Director S C Sinha also said the repo rate hike of 50 basis points will definitely have an impact on interest rates.
Rates are likely to go up and a decision to this effect will be taken in the ALCO (asset liability committee) of the banks in the next few days, Sinha said.

The RBI has hiked key short-term lending and borrowing rates by 50 basis points (0.5 percent) each with immediate effect to tackle inflation. This is the ninth time since March, 2010, that the RBI has raised key policy rates to tame inflation.

The short-term lending (repo) rate now stands at 7.25 percent and the borrowing (reverse repo) rate at 6.25 percent.

At the same time, the savings banks rate was revised upward after a gap of almost seven years to 4 per cent from the existing 3.5 percent to provide relief to savers affected by high inflation.
Commenting on the policy action announced in the annual credit policy for 2011-12, Union Bank of India Executive Director S C Kalia said the stance is very clear and signals hardening of interest rates.

The monetary measures are aimed at anchoring inflationary expectations without impacting credit growth, Kalia said.

Echoing a similar view, Dena Bank Executive Director Ashok Kumar Dutt said monetary transmission of the last policy rate hike has not taken place so far. With this increase, banks would go in for revision of interest rates.

In its last policy review in March this year, the RBI raised the policy rates by 25 basis points to rein in inflation. However, most of the banks absorbed the rate hike and did not pass it on to consumers.

The exact quantum will be decided by individual banks in the next few days.

PTI



First Published: Tuesday, May 3, 2011 - 13:40

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