Lending rates are likely to go up by 50-100 bps for retail as well as corporate borrowers, Punjab National Bank Chairman K C Chakrabarty said reacting to the Reserve Bank of India’s decision to raise its key lending rate and cash reserve requirement for banks.
“Bank lending rates may increase by minimum 50 basis points...it may go up by 100 basis points also,” Chakrabarty told Business Standard. However, Chakrabarty said the PNB’s Asset Liability Committee will meet soon to decide on the interest rate hike.
The Reserve Bank of India (RBI) today raised repo rate, the rate at which it lends to banks, by 50 basis points and cash reserve ratio by 25 basis points to make fund availability costlier for banks. As a result, banks will pass their higher cost of fund by raising lending rate for all customers including corporate.
Generally, banks lend at a lower rate of interest to corporate clients than the prime lending rate (PLR). However, the continuos increase in lending rates and cash reserve requirements is slowly narrowing the gap between PLR and sub-PLR lending rates.
“If banks don't raise lending rates, their profitability will be impacted. The lending rates are likely to go up for all sectors. The sub-PLR and PLR will converge soon,” Chakrabarty said.
Chakrabarty said the RBI’s action signals hardening of interest rates to moderate credit growth. It is up to the banks now to respond to the policy action, he added.