Lending rate may rise 1% on CRR hike: Banks

Loans will become dearer for housing, car, personal expenses as well as for industry with banks all set to increase the interest rates by between 0.5-1 % on RBI's decision to hike its short-term lending rate and mandatory cash reserve for banks. "Prime lending rate would go up by up to 50 basis points with the hike in CRR and repo rate," public sector lender Punjab National Bank (PNB) chairman K C Chakrabarty said. "All the loans linked to the PLR like consumer loan, home loan, personal loan are bound to go up. At the same time, deposit rates would also be increased," he added. The quantum of increase in each segment would be decided by asset liability committee of the bank in the next few days, the PNB chairman said. United Bank of India CMD P K Gupta said the banks may have to go in for a hike on interest rates even before the monetary policy scheduled next month. The quantum of increase will be decided after assessing the situation and the need of the individual banks, Gupta said. The country's second largest private sector lender HDFC Bank MD Keki Mistry said that if the cost of funding is raised, the bank would pass it on to the borrowers. "I expect no further action from RBI immediately," he said. HDFC Bank has recently raised its prime lending rate. Faced by unrelenting inflationary pressure, RBI on Tuesday announced hike in its short-term lending rate to banks and their cash reserve by 50 basis points each with an aim to suck up an estimated Rs 15,000-20,000 crore of liquidity. Indian Banks Association chief M B N Rao said that increase in CRR is justified because of inflation. Rao, however, said that with the rise in repo rate, it is definitely an indication that if inflation does not come down, the interest rates are likely to go up. The banks would wait for some time before increasing home loan rates, said Rao, who is also CMD of public sector Canara Bank. Bank of Baroda CMD M D Mallya said, "We have to evaluate the situation. The final decision on the rate hike will be taken after the board meeting." IDBI CMD Yogesh Agarwal said, "It is a continuation of the RBI's tight monetary policy and on expected lines."