HDFC Bank Increases Lending Rates

 Lending Rates

HDFC Bank has become the first major lender in the country to increase its lending rate in the wake of Reserve Bank of India’s measures to tighten liquidity. The bank has increased its base rate to 9.8% from 9.6% with effect from August 3, a move that would affect all corporate borrowers who have availed of floating rate loans.

The hike, however,will not impact home loan customers as mortgages sold by HDFC Bank are on behalf of its parent which has not revised its benchmark prime lending rate yet.

Last week YES Bank was the first to revise its base rate. Some other private banks, including Axis Bank, have raised their short-term deposit rates. “If the measures last, I would expect that cost of deposits to rise and this will have an impact on asset pricing,” said Sunil Kaushal, chief executive for India and South Asia, Standard Chartered Bank. Interest rates have been inching up gradually with RBI planning to hold its liquidity tightening measures for the medium term.

Although both the Prime Minister and the finance minister have gone out of their way to announce that the central bank’s measures are “temporary” , RBI has told banks that there is no such commitment. In its meeting with banks, the central bank has refused to provide a timeline for the measures. However , RBI has told banks that they have the headroom to absorb some of the cost arising out of the increase in short-term rates since they have reduced their base rate by only 60 basis points as against a 100 basis point reduction in the repo rate by RBI since last year. “We wanted a non-disruptive adjustment to higher interest rates at the short end. And that has been happening and that is going to happen. Whether it will transmit to the long end is uncertain. As I said, it might well transmit, but our intention is to invert the yield curve such that short rates are higher, and the long rates stay where they are. That is good for the economy,” said RBI governor D Subbarao while announcing his quarterly policy review on Monday.

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