Bankers see 25-50 basis points rate hike

Believe RBI will raise policy rates.

Bankers are preparing for an interest rate hike of about 25-50 basis points. "While there is no crunch immediately, liquidity is drying up and we see repricing of new loans at 50-70 basis points higher. We may be looking at raising lending rates in the first quarter next year," says Deepak Parekh, chairman, Housing Development Finance Corporation (HDFC).

Senior bankers believe that the Reserve Bank of India (RBI) too will raise its policy rates. Says Sundeep Bhandari, regional head, global markets, Standard Chartered Bank, "The RBI may raise the reverse repo rate in January by about 25 basis points, which could result in rates across the system moving up."

Adds Abheek Barua, chief economist at ABN Amro Bank, "The ten-year benchmark yield could go up to around 7.25 per cent."

Paresh Sukthankar, head, credit and market risk, HDFC Bank, says that with both corporate and retail demand for credit being robust, there is likely to be some tightening of liquidity.

"Corporates may not be able to access the overseas markets as they have been doing in the last couple of years, given the higher borrowing rates there, as also the depreciating rupee. As such, the demand for credit is likely to outpace the supply," he observes.

KV Kamath, managing director and CEO, ICICI Bank, does not rule out hardening of rates in the medium term even though he feels that the liquidity in the system, at around Rs 1,20,000 crore, appears to be comfortable now.

The longer than normal seasonal effect"" attributed to the festive season as also elections in some states ""has had some banks scrambling for cash.

In fact, rates have already moved up marginally, both for loans and deposits. HDFC Bank, for instance, has increased deposit rates by 25 basis points across most tenures. Some banks, both in the public and private sectors, are paying a premium for wholesale deposits, in the range of 25-30 basis points. Lending rates too have seen an uptick.

Says TS Bhattacharya, managing director, State Bank of India, "While there is no shortage (of liquidity) immediately, there is no surplus either. However, since the accretion on the deposit side has been slower than the growth in loans, our deposit rates have moved up slightly. Besides, lending rates have gone up by about 50 basis points, except for loans to the priority sector. Corporate term loans which were being given at 7.5 per cent earlier, are now fetching us 8 per cent."