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Banks (Finance)

India's Banks Reaffirm Rate Hike Pressures: SBI and ICICI Bank signal passing costs to Consumers

Strategic Insights

— 2 min read

India's biggest lender, State Bank of India, has reaffirmed the likelihood of passing on rate hike pressures to consumers, following the Reserve Bank of India's decision to increase key rates by 50 basis points. This move is expected to have a significant impact on the country's banking sector, with ICICI Bank also echoing the sentiment of passing on the increase in costs to consumers. The interest cycle is expected to peak by 2011-end, with the rate hike impact being seen in the next 2-3 years. Meanwhile, private sector YES Bank has already raised its lending rates by 50 basis points, with other lenders such as HDFC Bank, Kotak Mahindra Bank, ING Vysya Bank, and Axis Bank warning about slowing loan growth.

Key Takeaways:

  • State Bank of India's MD & CFO, Diwakar Gupta, has stated that the bank may have no option but to raise lending rates, citing the increase in deposit costs as a potential reason.
  • ICICI Bank's MD & CEO, Chanda Kochhar, has echoed the sentiment of passing on the rise in key rates to consumers, stating that this will impact the bank's net interest margins.
  • YES Bank has already increased its lending rates by 50 basis points, with its base rate revised to 10.25 per cent and benchmark prime lending rate increased to 19.5 per cent.
  • Several lenders, including HDFC Bank, Kotak Mahindra Bank, ING Vysya Bank, and Axis Bank, have warned about slowing loan growth compared with a year earlier.
  • The interest cycle is expected to peak by 2011-end, with the rate hike impact being seen in the next 2-3 years.
  • Private sector banks, including YES Bank, are expected to be deeply impacted by the rate hike, with some already implementing increases in lending rates.
  • The Reserve Bank of India has cut credit growth forecast for banks to 18 percent from 19 percent projected earlier.

Statistics:

  • 50 basis points increase in repo rate and reverse repo rate by the Reserve Bank of India.
  • 18 percent credit growth forecast for banks, down from 19 percent projected earlier.
  • 50 basis points increase in lending rates by YES Bank, with its base rate revised to 10.25 per cent and benchmark prime lending rate increased to 19.5 per cent.
  • 2.4 per cent decline in State Bank of India's shares.
  • 1 per cent decline in ICICI Bank shares.
  • 1.5 per cent decline in Axis Bank shares.
  • 3.4 per cent decline in Punjab National Bank shares.
  • 0.7 per cent decline in BSE Sensex.
  • 1.3 per cent decline in BSE Banking Index.

Sources:

  • ET Now interview with Diwakar Gupta, MD & CFO, State Bank of India Ltd
  • ET Now interview with Chanda Kochhar, MD & CEO, ICICI Bank
  • Reuters snap poll
  • YES Bank press release
  • HDFC Bank press release
  • Kotak Mahindra Bank press release
  • ING Vysya Bank press release
  • Axis Bank press release
  • Reserve Bank of India press release

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