Home loan rates set for hike

14 June 2005

HDFC Bank, UTI Bank and foreign banks are looking at hiking bank deposit rates as well as rates on loans by 25-50bps while public sector banks are keenly watching the developments as finance minister P Chidambaram has indicated that he does not favor a rate hike.

However, bankers say the recent hike in the reverse repo rate would lead to a rise in the cost of funds of banks leading to a rise in loan rates for both the retail and corporate segments.

They say the lending rate hike can take place even without raising the prime lending rate (PLR). In other words, banks will decrease the spread for sub-PLR loans. The PLR is the rate at which prime bank customers can borrow money. But all large borrowers with good credentials borrow at rates below the PLR.

Senior HDFC Bank officials said, "We are likely to increase both deposit rates and rates on retail loans as well as on corporate loans by 25-50 basis points." HDFC Bank's asset-liability committee will meet next week to take a decision on interest rates.

Bank officials from private and public banks are keenly waiting and watching the developments, as the situation is dynamic. The head of a state-owned bank said, "A hike in deposit and lending rates is inescapable. Banks are scheduling asset-liability committee meetings in the coming week."

Though public sector banks may not hike rates as of now but interest rates will definitely go up in another couple of months he said.