An increase in repo rate will raise the cost of funds for banks and some of them are trying to pass on the higher costs to borrowers.
SBI Chairman OP Bhatt told reporters on the sidelines of a seminar that the state-owned bank's asset liability committee, which is meeting on Friday, may have to decide to raise the benchmark prime lending rate (PLR) or alternatively raise rates for some of the loans on offer.
"There may be a little rationalisation of interest rates or we may need to raise PLR. The rate of credit growth this year has not been bad compared to last year so far," he said, adding that banks have managed the pressure on margins through higher efficiency, by changing the product mix and reducing transaction costs.
Though Bhatt refused to name sectors that could expect an increase in borrowing costs, he said the decision will be based on demand for loans. Housing Development Finance Corporation also indicated that it may have to raise home loan rates.
"We will review our lending rate at the end of the month. There is an upward pressure on interest rates. We will see how liquidity remains and how short-term rates behave," HDFC Chairman Deepak Parekh said.
While India's second-largest lender, ICICI Bank, reiterated that it will adopt a wait-and-watch strategy.
Yes Bank said that its asset liability committee will decide on the issue by Monday.
