RBI hikes repo rate: SBI & other banks may follow with higher deposit rates

RBI hikes repo rate: SBI & other banks may follow with higher deposit rates

Posted by Unknown on Wednesday, 29 January 2014 0

While SBI may increase deposit rates after the  RBI effected a repo rate trek of 25 bps on Tuesday, taking it to 8%, different banks may abstain from any  rate activity starting now.

The climb in the repo rate and the expansion in the marginal standing  to 9% will mean higher cost of funds for banks who depend more  on the special windows since their right to gain entrance to retail deposits is restricted.

Arundhati Bhattacharya, executive, SBI, told columnists on Tuesday that  while rates may climb a spot, SBI may reconsider before passing  on the increment in expenses to its borrowers. "Transmission will just happen when it influences the cost of funds. There will be a tad bit of ascent in deposit rates, what amount of it might be passed on will rely on upon the limit of the borrowers with us," Bhattacharya said.

India's biggest bank held a possessions and liabilities council (ALCO)  late on Tuesday to review interest rates. Different banks, notwithstanding, may take as much time as required to settle on any rate movement  in the near future. "Lending rates rely on our cost of funds. For  the last numerous quarters, the deposit rates have not changed, the excuse for why  is that deposit rates are, connected to the rate of inflation. You may as well watch the patterns in inflation and deposit rates," said Chanda Kochhar, MD & CEO, ICICI Bank.

Bankers call attention to that since a hike did not happen in the December  Monetary policy announcement, the present increment may be acknowledged  as business as usual. "In the event that inflation is to descend, as the governor appears to feel it will, then the pattern likely is not for rising interest rates,"  said Aditya Puri, MD & CEO, HDFC Bank. The rate hike won't put bank margins under pressure, he added.

Bankers feel any increase  in lending rates will be incited just by a hike in deposit rates, which is not likely in the present situation.