MUMBAI : Faced with a tough economic environment and muted credit growth, banks are unlikely to hike their lending rates in a hurry for fear of aggravating their asset quality problems and further denting profitability. The banks are likely to not hike their loan or deposit rates despite a 25-basis-point increase in the repo rate to 8% by the Reserve Bank of India.
Banks face a dilemma — depositors need to get higher returns on their savings but if deposit rates are hiked then loan rates also need to move up to maintain net interest margins.
It is this conundrum that Punjab National Bank Chairman and Managing Director K.R. Kamath describes when tackling questions on a possible hike in loan or deposit rate.
“Looking at the inflation the depositors needs to be given a better treatment. Looking at the stress of the asset, we need to see that we don’t pass on lot of it to the borrower. How do you balance?.” Arun Kaul, chairman and managing director, UCO Bank and State Bank of India Chairman Arundhati Bhattacharya agreed that it is a tough call.
Lalit Kumar Jain, chairman of Confederation of Real Estate Developers’ Associations of India, decried the rise in repo rate and warned that the rate hike if passed on will push up cost for the real estate sector and hit asset quality of banks.
India Ratings in a note said the number of stressed corporates in BSE 500 may creep up to 10.7% from the current level of 9.5% due to Tuesday’s repo rate hike. -Cogencis