Private banks hike rates after RBI’s tight-money steps

While public sector banks are holding lending rates on government diktat despite the recent rupee-tightening measures by the Reserve Bank of India, private banks can no longer stand the pinch, and have started raising interest rates despite extremely weak demand.

Yes Bank on Wednesday hiked both lending and deposit rates, while Kotak Mahindra Bank said it would take a call on this soon.

Yes Bank's base rate has increased 25 basis points (0.25 per cent) to 10.75 per cent, and deposit rates on select tenures have also gone up by 25-50 bps.

The increase in lending rates was aimed at protecting margins, said Jaideep Iyer, president of financial management at Yes Bank.

HDFC Bank and Axis Bank, the second- and third-largest private lenders in the country, also raised rates on deposits in baskets ranging from seven days to a year by 50-400 bps.

Kotak Mahindra Bank said its asset liability committee was yet to meet. ''It will meet later this week and we'll know,'' said Dipak Gupta, joint managing director.

Meanwhile, rates for three month certificates of deposit (CDs) – which are issued by banks to raise money – have climbed to 11 per cent, compared with just 7.98 per cent before the RBI announced the liquidity tightening measures some two weeks back.

CDs make up 10.7 per cent of the deposit base for Yes Bank and 14.85 per cent for Kotak Mahindra Bank.

The Yes Bank move comes just a day after RBI governor D Subbarao said banks have enough cushion to not raise lending rates since they haven't fully passed on the repo rate reductions announced earlier by the central bank.

''There will be cushion, but the cushion will go down over a period of time,'' said Yes Bank's Iyer.

He said Yes Bank wanted to wait till the next policy review meet to understand the rationale behind the RBI's steps, but went ahead with the hikes after it emerged that the central bank was now targeting the currency, which is not expected to stabilise soon.