Banks may put off rate hikes

Banks are bracing up for another round of increase in deposit and lending rates following the hike in the reverse repo rate.

However, most of them are not in a hurry to announce such hikes. This is because Finance Minister P Chidambaram in his last meeting with public sector bankers made it clear that he would not want them to hike interest rates on loans given for productive purposes till the end of the financial year.

Today, Chidambaram said that the RBI decision to increase the reverse repo rate could be reversed once the external situation became clearer.

"Caught between the finance minister and the RBI governor, bankers will tread with caution," said an analyst.

The Bank of Baroda was the first to announce that it would increase deposit rates by 25 basis points with effect from either January 27 or February 1.

Earlier this month, the bank had raised interest rates on its domestic term deposits and non-resident rupee accounts by 25 basis points. HDFC will meet later this week to consider a 25-50 basis point hike in its home loan rates.

The State Bank of India (SBI) and others will follow suit soon. SBI, in fact, recently hiked its deposit rates.

ICICI Bank said long-term rates would go up gradually. It has already raised its benchmark prime lending rate by 25 basis points to 11.25 per cent.

HSBC's head of personal financial services, Nicholas Winsor, told Business Standard: "Home loan rates are definitely set to rise. We will announce our home loan rates soon but rates on unsecured lending products such as credit cards and personal loans are not expected to move up."

Most of the banks have lined up meetings of their asset-liability committees over the next few days to decide on courses of action. Deposit rates have already gone up by 25-100 basis points over the last couple of months, but none of the banks has officially hiked its prime lending rate.