Bend it like Bernanke

Interest rates on home loans will see a marginal hike while competition may hold back immediate rate hikes in other retail loans like auto, personal loans and two-wheeler loans among the bigger players. Banks are likely to tread a fine line while increasing the rates as there are fears that hike in rates would affect the loan growth in the segment.

Bankers have had to choose between keeping loans affordable and growing retail business with thinner margins or raise rates, protect their margins but risk slowing growth. RBI’s move to hike interest rates will nudge them into passing on the cost to borrowers.

Some of the bigger players in the home loan sector like HDFC who had not increased the home loan rates in will hike its rate next week. LIC Housing Finance is also looking at hiking its home loans rates. Public sector banks like Bank of Baroda, Punjab National Bank, Union Bank of India and Oriental Bank of Commerce are also looking at hiking their rates across the retail segment including home loan, auto loan and personal loans.

“There is likely to be some upward pressure on interest rates for customers specially in mortgages, over a period of time. Banks have not absorbed the rising interest rates in the secured portfolio with the result that margins have been affected. However, for unsecured lending where margins have been higher, there has been a tightening of margins,” said Neeraj Swaroop, CEO, StanChart.

Floating home loans rates are among the bigger players are currently in the region of 9-9.5%, while fixed loan rates are in the region of 10.5-11%. Already in this calendar year, home loan rates have gone up by 100-150 bps. ICICI Bank will take a decision soon. “

We will analyse the impact on deposits and then take an appropriate decision. Deposit rates are a function of liquidity and interest rates and currently there is ample liquidity in the system,” said Vishaka Mulye, CFO, ICICI Bank.

“The interest rates on the retail asset side have already build up. Further hikes will cause a gap between EMIs and salary levels. The rate hikes have already been discounted by the market. Over the past 12 months there has been a right pricing of the secured loan products like mortgages and auto loans,” says Romesh Sobti, country representative, ABN Amro Bank.

“There is a need for most players to revisit their rate structures. The possibility of a hike in lending rates by around 25-50 basis points is likely,” Rana Kapoor, MD and CEO, YES Bank .

Bank of Baroda, which has one of the lowest floating rate home loan between 8.25-8.75 is also looking at increasing rates across the retail loan segment. Says AK Khandelwal, CMD, Bank of Baroda, “

Our PLR is one of the lowest in the industry at 11%. We want to realign our rates both in corporate and retail so that our NIM, which is currently at 3.3%, is maintained. Our board is meeting on July 28 to take a final decision.” However, other bankers feel that there was unlikely to be any rate hike in the immediate future.