Federal Bank hints at increasing lending rates

Our Banking Bureau
11 December 2006

Mumbai: Private sector Federal Bank Ltd is likely to increase lending rates in the near future following the Reserve Bank''s decision to hike the cash reserve ratio (CRR) - the percentage of deposits that banks must park with the central bank.

"Indian banks do have scope for raising lending rates by 25 basis points in the next two - three months on account of the RBI''s move to increase CRR as it will impact net interest margin of banks," M Venugopalan, chairman, Federal Bank, said.

The Reserve Bank had last week raised the CRR to 5.5 per cent to contain liquidity and check inflationary trends.

The Kerala-based Federal Bank, meanwhile, proposes to open over 200 branches in the next two years raising its branch strength from 518 at present to 750 by 2008. The bnk also has targeted total business of Rs50,000 crore.

The bank is planning to set up a branch in the Middle East through a joint venture with Dubai International Financial Centre for catering to NRI customers. It will also awaiting clearance from UAE authorities for setting up a representative office in the UAE.

"We will like to see our total business grow to Rs50,000 crore from the present Rs32,000 crore by 2008," Venugopalan said.