HDFC Bank hikes lending rate

HDFC Bank, the country's second largest private sector bank, has decided to follow its counterpart, ICICI Bank in increasing lending and deposit rates, in response to monetary tightening by the Reserve Bank of India (RBI).

The bank raised its benchmark prime lending rate (BPLR) sharply by 150 basis points to 13 per cent. The bank had last raised its lending rates in June this year by 50 basis points. One basis point is one-hundredth of one per cent.

"In June the costs were higher, however, we didn't increase the rates as much. However, liquidity is tight, policy rates and actual cost of funds have both increased since then," said Ashish Parthasarthy, head of trading, HDFC Bank.

The Reserve Bank of India (RBI) has raised its rates twice this year, in July and October. It announced a 50 basis point increase in the cash reserve requirement earlier this month, which coupled with rising costs of borrowing has triggered a rate hike by the bank.

"Over the last one year, deposit rates across various maturities have gone up by 100-200 basis points. Over the current quarter, deposit rates have risen by at least 25-50 basis points," said Paresh Sukhthankar, head - credit and market risks at HDFC Bank. The bank has also increased its deposit rates by 50-75 basis points, following a similar increase in June.

"The increase in BPLR, will not lead to repricing of loans across the board. There will be upto a 50-100 bps increase in loans depending on the market rates for different products, borrowing rates for corporates, over a period of time. This is because most of the bank's retail and corporate lending is done at fixed rates and is not directly linked to the BPLR," said Sukhthankar.

"The bank's net interest margin which stood at around 4 per cent at the end of September 2006, are likely to be maintained at that level. Liquidity will be very tight even as the credit growth will continue", said Parthasarthy.

ICICI Bank, the country's second largest bank, raised lending rates by 50 basis points across the board with effect from December 18, its third identical hike since April 2006.

The country's largest bank State Bank of India, and several other public sector banks have raised their deposit rates by 25-75 basis points, but are still to take a call on increasing lending rates. ICICI Bank also increased its deposit rates by 25-75 basis points.

The RBI earlier this month raised the cash reserve ratio (CRR) by 50 basis points in two equal phases, effective from December 23 and January 6, over concerns of an overheating economy and to rein in unprecedented growth in credit and rising inflationary expectations.