Lenders do not see interest rates easing soon given the tight market conditions

KOLKATA: It may take a lot longer to see interest rates ease across the board. In fact, in some case, it could even rise before falling, given the tight market conditions amid slowing deposit rates, lenders said.

Srei BNP Paribas, an infrastructure and construction equipment financing company, raised benchmark lending rates 25 basis points to 17.25%. A basis point is 0.01 percentage point.

"We were looking for some interest rate cooling off in the recent RBI policy announcement, which didn't happen," said DK Vyas, chief executive of Srei BNP Paribas. "We had no choice but to increase our rate."

Although HDFC Bank cut its lending rates by 20 bps, interest rates are still not coming off across the board as it happened in the past.

State Bank of India's decision last week to raise deposit rates by 25 bps for some maturities dashed hopes of the nation's biggest lender lowering rates anytime soon after the recent adjustments.

"Although SBI enjoys a high ratio of low-cost deposit, its decision indicates it may not lower lending rates across the board," said a banking analyst who did not want to be identified.

Interest rate decision for lenders has become the toughest with the market rates and the central bank's intentions pulling bankers in opposite direction.

While the RBI had hinted in April that it wanted to lower rates, last month it stayed back from easing rates citing inflationary conditions. When bankers were reluctant to match the RBI's rate cut, the government brought down some interest rates by stealth.

SBI, which is planning to raise $1 to $ 2 billion from overseas markets in the next three months, may have to pay a higher interest rate as the country is facing the possibility of a downgrade of its sovereign rating.

RBI said last week the ability of Indian banks and corporates to borrow overseas could be hit if the country's sovereign rating is downgraded.

SBI, however, lowered interest rates for the agriculture and small & medium enterprise (SME) sectors by 50-350 basis points but the move was seen as a late monetary transmission of RBI's 50 bps repo rate cut in April.

Vyas said Srei BNP Paribas was looking for a trend of increasing borrowing cost before it decides to pass on the incremental borrowing cost to its customers to maintain a healthy margin. The company had last raised the rate in November last year by 100 basis points. The company said it enjoys a 30% market share and has a 28,000-strong client base.