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Interest rates have started going up. A day after the Reserve Bank of India (RBI) hiked the repo rate by 25 basis points and reverse repo rates by 50 basis points in its battle against inflation, banks have started hiking deposit rates. HDFC Bank, Central Bank of India and private lender Laxmi Vilas Bank were the first to jack up the deposit rates. Bankers said it’s only a matter of time before others hiked the deposit rates and lending rates subsequently.

HDFC Bank became the first lender to increase its fixed deposit rates by up to 75 basis points after RBI raised key short-term rates. With deposit rates going up, the bank may also raise lending rates in the next few weeks, HDFC Bank executive director Paresh Sukthankar said. The revised fixed deposit rates would be effective from July 30. “We have decided to raise deposit rates across various tenor between 25-75 basis points. The rate hike was logical as the banking system is expected to remain in marginally deficit situation coupled with expected strong credit growth in the coming days,” he said.

Mumbai: Anxious that interest rates may move up quickly and that they may have to pay more to attract deposits later, banks on Wednesday rushed to announce higher deposit rates. Among the banks that announced an increase were HDFC Bank, Central Bank and Laxmi Vilas Bank.

Bank of India (BoI) executive director M Narendra said it would be raising deposit rates by 25-50 basis points in a month’s time, while State Bank of India (SBI) chairman OP Bhatt said the bank would be floating a 15-year retail bond issue for Rs 200-300 crore.

On Tuesday, Reserve Bank of India (RBI) raised the repo rate by 25 basis points and reverse repo rate by 50 basis points. While private sector lender HDFC Bank hiked its fixed deposit rates by 25-75 basis points across tenures, the state-owned Central Bank of India increased rates on term deposits up to Rs 1 crore by 25-50 basis points effective August 1. Corporation Bank had raised term deposit rates on the eve of the RBI policy review, and now offers 25 basis points more for deposits up to Rs 1 crore with a maturity of 33 months — 1,000 days to be precise.

Paresh Sukthankar, ED, HDFC Bank said: “We have decided to raise deposit rates across tenures between 91 days and 6 months, by anywhere between 25-75 basis points and are offering larger increases in short-term rates. The increase shouldn’t impact our margins, since the cost will be passed on to borrowers.”

More importantly, Sukthankar added that the bank would review its base and lending rates soon, saying he expected lending rates would reflect the higher cost of deposits. S Sridhar, CMD, Central Bank, said: “We have increased deposit rates in two categories, by 50 basis points at the shorter end for 46-90 days and by 25 basis points for maturities of over one year but less than two years. We are likely to revise interest rates in other buckets too.”

SBI chairman Bhatt observed on the sidelines of a press conference that interest rates must start rising from August-September and that they should begin on the deposit side with a rise of at least 25 basis points. “In an environment where there is an upward bias to interest rates, deposit rates will move up first before lending rates go up.

However, that will not necessarily pressure margins, since loan growth should be substantial enough to offset…

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This post was submitted by Rishi Kumar Maurya.

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