Lending rates may go up by September

Mumbai, Aug 10: Lending rates, which were seemingly stable after the recent hike in Cash Reserve Ratio (CRR), may go up by September in the backdrop of fast tightening liquidity conditions, including the recent revision in External Commercial Borrowing (ECB).

According to industry sources, a slew of corrective measures brought in by Reserve bank, including the removal of daily cap of Rs 3,000 crore on Reverse repo window, hike of 50 basis points in CRR rates and upward revision of the ceiling of Market Stabilisation Schemes(MSS), will suck out the surplus cash in market by September, compelling lenders for a hike in credit rates.

Speaking to reporters today , Chanda Kochhar, Deputy Managing Director of ICICI bank, was also seen cautious about the market scenario and rate fluctuations.

''As of now, liquidity is there and deposit rates have also come down. Lending rates are not likely to undergo major fluctuations at this stage. However, We have to see all factors.'' State Bank of India (SBI) and ICICI, Country's top two lenders, had recently mooted a cut in domestic term deposits by 25-50 basis points while keeping the rates for special schemes untouched.

Other banks who cut down the deposit rates include Dena bank, Union Bank of India(UBI) and HDFC. However, most of the banks have chosen to retain high returns for Special deposit schemes in order to view top-end depositors abreast.

This apart, a highly volatile trend vivid in stock markets may also come in rescue for banks.

On the other side, a few bankers see an imminent hike in lending rates by 50 basis points by September.

''Lending rates will go up in next 1-2 months as the tightening measures are expected to suck out excess liquidity levels by this period. This may take call rates over 7.00 percent. Credit rates are likely to go up by 50 basis points.'', a senior banker told UNI.

To intensify its measures to check the liquidity scenario, RBI had recently hiked the ceiling of MSS bonds by nine basis points, enabling the regulator to offload upto Rs 1,50,000 crore as against the earlier limit of Rs 1,10,000 crore.

Earlier the banking regulator had also introduced a revision in External Commercial Borrowings (ECBs), according to which ECBs more than 20 million US dollars shall not be remitted in India.

However, any further hike in Lending rates may add to the woes of the borrower for the lending rates are already stand higher.

While the home loan rates skyrockted to around 11.25 percent in past year, auto loans rates are hovering around 12.75 percent.

UNI