Hike in CRR signals end of special loan rates

The hike in cash reserve ratio (part of deposits that banks have to park with the RBI) will signal the end of special home (also called teaser home loan rates) and auto loan rates. It is also expected to jack up borrowing costs for companies. “These rates will come to an end by march,” said MV Nair, chairman of Indian Banks Association (IBA) and chairman and managing director of Union Bank of India. The hike is expected to push up interest rates for large companies according to CEOs of major banks. Banks currently lend nearly a quarter of their large corporate advances below their prime lending rate to their prime customers. These, according to bankers, will have to be appropriately prices so that their margins can be protected. However there are fears that rates on riskier segments like the SME and real estate etc may also be hiked. “The interest rates on sub-PLR (below prime lending rate) loans may go up as these loans have been priced lower. Rates on short- term funds will also go up. The companies that were depending on short-term credit of 3 to 6 months will see their rates inching up. But our retail borrowers will not be affected as we have no immediate plans to hike rates on home or auto loans. But in the next six months there could be gradual rise in interest rates across segments,” OP Bhatt, chairman and managing director of State Bank of India (SBI) told reporters. “Banks will find some ways to pass on the costs to the borrowers,” said KR Kamat, chairman and managing director of Punjab National Bank. Heads of private and foreign banks also echoed similar sentiments. “Loans to triple A companies were wrongly priced. Now this would be rectified with banks trying to raise interest rates on sub-PLR loans. When supply of credit is curtailed it is but natural that rates may go up. Overall in the short term interest rates may remain under check but it is bound to rise in the medium term,” HDFC Bank chief executive officer (CEO) Aditya Puri said in a press conference. Foreign banks also do not expect rates to go up for their retail borrowers. “Our consumer loans are appropriately priced and we don’t expect rates to go up here. The wholesale lending rates needs to looked at in the short and medium term,” CEO Standard Chartered Bank India, Neeraj Swaroop told reporters. Source:http://www.mydigitalfc.com/personal-finance/hike-crr-signals-end-special-loan-rates-834 Filed under: Home loans Tagged: Home loan interest rates