Date:26/07/2006 URL: http://www.thehindubusinessline.com/2006/07/26/stories/2006072604740600.htm

Back `Non-farm sector likely to feel rate hike impact'

Our Bureau

Borrowing costs to go up, particularly for retail sector

Mr C.P. Swarnkar

Bangalore , July 25

Banks are expected to hike lending rates to corporate and retail borrowers taking a cue from the Reserve Bank of India's hike in the reverse repurchase (repo) and repurchase rates by 25 basis points.

Syndicate Bank's Chairman and Managing Director, Mr C.P. Swarnkar, said: "There will be changes in the lending rates since costs have gone up." The costs that have escalated included deposit interest rates. Almost all the banks have already carried out one round of deposit rate hikes and have not ruled out further increases in the coming months. Mr Swarnkar said, that the changes are essential to protect the net interest margins (NIM) of banks. Currently, the industry-wide NIM averages 3.25 per cent.

However, the Chairman of the Karnataka Bank, Mr Ananthakrishna, said the repo rate revisions would not necessarily lead to a hike in the Benchmark Prime Lending Rates (BPLR). He said, "Lending at discounts to BPLR will vanish. Even now we are lending at BPLR minus rates."

Mr Ananthakrishna

Bankers also said that that despite the slight changes, farm credits would not be affected. Almost all the banks are currently making farm advances at 7 per cent. Inclusive of a subsidy from the government, the actual yield on farm advances is 9 per cent. This rate is comfortable.

But it is the non - farm sector that is likely to feel the full impact of the rate hikes, the bankers said. This included retail advances. This would translate into some increases in their borrowing costs.