Banks likely to hike PLR, loans to be dearer
Wednesday, 25 June 2008, 19:30 IST
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Mumbai: Commercial banks are likely to raise prime lending rates (PLR) after the Reserve Bank of India (RBI) Tuesday hiked both the repo rate and cash reserve ratio to combat inflation, top bankers said. According to Punjab National Bank chairman K.C. Chakrabarty, the PLR is likely to go up by 50 basis points. "The hike in PLR will directly affect the consumer loans, home loans, and personal loans. All these are bound to go up," he said. Chakrabarty also feels there is likely to be a hike in deposit rates. Echoing a similar sentiment, Bank of India chairman and managing director T.S. Narayanasami said both the cost of deposits and lending rates are set to rise. "We have to yet assess the impact of inflation before loading an increase in interest rates so that our asset portfolio is not weakened. We will now have to live with lower net interest margins," he said. Bank of Baroda chairman and managing director M.D.Mallya too said his bank would evaluate the situation first before taking the final call. "We are likely to take a final decision on rate hike after our asset liability committee meeting," he added. India's second largest private bank HDFC managing director Keki Mistry said, "If the cost of funding is raised, it will be passed on borrowers." However, HDFC will not take any immediate action as it had hiked PLR by 25 basis points last week. Several other banks such as Yes Bank and IndusInd Bank had also increased PLR before the RBI's announcement Tuesday night. Analysts feel the anti-inflationary measures taken the RBI will tighten the liquidity in the system, as the CRR hike would suck out around 190 million.
Source: IANS