HDFC Bank, ICICI Bank and Kotak Mahindra have increased rates on home and auto loans, highlighting the hardening market that may cause RBI to hike interest rates to combat inflation.
These banks have increased lending rates by as high as 100 basis points, subsequent to the stiffening of the interest rate, despite RBI trying to keep the rates low to prevent disruption of economic growth.
Pralay Mondal, country head (retail assets & credit cards), HDFC Bank said, “Auto loan rates have been marginally increased by 50 bps. The increase in the cost of funds is being passed on to customers. It has been done to protect our margins.”
Banks are increasing lending rates to retain their profitability after a hike in the deposit rates over the last some months, to bring back the funds that were finding their way into high-return stocks and realty. Investors are after higher returns instead of bank deposits as their prices are much higher than the interest rates given by the banks, thus generating negative real returns.
However PSU banks like PNB, SBI and Bank of Maharashtra that have excess liquidity are still continuing with their old rates. This hike in the interest rates comes towards the end of financial year, implying that the lenders are expecting hardening of interest rates.