While HDFC Bank and State Bank of India have hiked their base rates, most other banks are likely to keep their rates unchanged.
On Tuesday, HDFC Bank, India’s second largest private bank, became the first lender, post-policy, to raise its base rate (the rate below which banks do not offer loans) by 20 basis points to 10 per cent. On Wednesday, India’s largest bank SBI also raised its base rate by a similar margin.
However, others such as Bank of India and Bank of Baroda do not plan to hike their base rates any time soon. “We are unlikely to go for a base rate hike as of now,” said V. R. Iyer, Chairperson and Managing Director, Bank of India.
BoB Chairman S. S. Mundra said: “We have decided to maintain status quo on our base rate. The liquidity and deposit growth will be looked at while deciding the base rate. We are comfortable with the liquidity at present. HDFC Bank can afford a rate hike as their base rate is still the lowest.”
Some rationalisation by way of a marginal increase in interest rates on deposits could take place, an official at YES Bank said.
Further, bankers are expecting liquidity measures to be eased before the next monetary policy review in December.
Canara Bank’s base rate is now the lowest in the industry at 9.95 per cent, followed by SBI, ICICI Bank, HDFC Bank and Oriental Bank of Commerce at 10 per cent.
The upward revision in the base rate by SBI and HDFC Bank follows the RBI hiking the key policy rate (repo) by 25 bps to 7.75 per cent in its second quarter monetary policy review on October 29. In addition, the RBI also cut the marginal standing facility (MSF) rate by an identical margin to 8.75 per cent.
Repo rate is the rate at which banks borrow funds from RBI.
The hike in repo rate increases banks’ cost of borrowing from the RBI, while the MSF cut reduces the cost of short-term money, such as commercial papers and certificates of deposits as well as overnight call money.