PNB set to hike interest rates, home loans exempted

New Delhi, Feb 14: Close on the heels of RBI's recent measures to contain inflation, PNB Chairman S C Gupta today gave sufficient hint that lending rates would move northwards and expressed the hope that the extreme volatility witnessed in the stock markets would settle down.

''While deposit rates are almost entirely market determined, there is scope for maneuverability of the lending rates,'' Mr Gupta told newspersons on the sidelines of a function to open PNB's first Capital Market Services Branch here.

Mr Gupta said top officials of the bank would meet later in the day to decide whether lending rates would be hiked, but was quick to add that he would much prefer that such decisions are taken at the Board meeting, slated to be held in Goa on February 23 and 24.

There is widespread speculation that as a result of the recent measures using monetary policy instruments, interest rates relating to the retail sector on consumer and home loans would move up.

He said interest on home loans upto Rs 20 lakh may not be raised to protect the interests of the smaller borrower. He, however, was non-committal on interest rates on home loans above this level.

This was also the suggestion made by Finance Miniser P Chidambaram, and the PNB Chairman said he saw wisdom in this recommendation.

Mr Gupta said the stock markets were driven more by sentiments than by fundamentals and expressed the hope that the element of ''insanity'' would finally vanish and the strong fundamentals would prevail. He said this was the trend worldwide and India was no exception to the rule and added that the high growth rate of nearly nine per cent was a pointer to the strong fundamentals of the Indian economy.

Mr Gupta said the bank was in the process of opening more overseas branches. These included subsidiary branches in London, the United Kingdom, and an offshore branch each in Hong Kong and Singapore.

The PNB head said three branches were likely to be opened by June this year and one in April and was hopeful that the Central Banks would give their approval soon. ''Our applications are in an advanced stage.'' Mr Gupta was reluctant to give a precise figure of the likely interest rate hike, but said this had become essential to maintain the existing level of profitability in view of the erosion of values in the bond market. The loss in treasury operations by commercial banks of necessity would entail a hike in interest rates.

He said the profit margins in the fourth quarter would be under pressure and indicated that Rs 1,200 crore would be sucked out of the bank as a result of the two hikes in cash reserve ratio (CRR). The latest would mean Rs 600 crore less liquidity for the bank while the earlier resulted in a drain of Rs 550-600 crore.

He said while he has the permission of the Board to raise Tier I and Tier II capital, this would not be done.

Mr Gupta was also confident that PNB would be able to meet all the parameters listed in the Statement of Intent made to the Finance Ministry.

In an effort to curb money supply and control inflation, which touched a two-year high of 6.58 per cent last week, RBI raised the CRR to six per cent -- a hike of 0.5 per cent.

The CRR is the percentage of a bank's total deposits, which it must keep with the RBI. The CRR increase, the second in three months, is the latest in a series of meaures the Central Bank has been taking to bring down inflation.

In its recent Annual Review of the Credit Policy, the repo rate was increased by 25 basis points.

The Branch at Parliament Street is aimed at providing value added services to its corporate clients, primarily Merchant Banking services.

UNI