Loan rate hikes by banks a 'commercial decision': Fin Min

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Loan rate hikes by banks a 'commercial decision': Fin Min

R Gopalan, the Banking Secretary in the finance ministry has said that the loan hike by some banks is a “Commercial decision” and that the ministry was giving no director to public sector banks on loan rates.

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Watch CNBC-TV18 live only on MYTV >> RELATED NEWS ICICI, HDFC Bank discontinue special home loan scheme ICICI, Kotak Mah Bank raise home, auto loan rates ALSO READ See latest News about ICICI Bank See previous management interviews See what other Experts & Brokerages are saying about ICICI Bank Nifty BSE | NSE 31/05/12 Are Mutual Funds betting on Nifty? Other Stocks in this news HDFC Bank |

Two of the major banks- ICICI Bank and HDFC Bank yesterday announced discontinuation of their special home loan schemes. Besides, ICICI Bank, HDFC Bank and Kotak Mahindra Bank have hiked their auto loan rates as well.

Commenting on the same, R Gopalan, the Banking Secretary in the finance ministry has said that the loan hike by some banks is a 'commercial decision' and that the ministry was giving any direction to public sector banks on loan rates, reports CNBC-TV18 quoting NewsWire 18.

Udayan Mukherjee's take

At the consumer end bank loan rates have started going up, says CNBC-TV18's Managing Editor Udayan Mukherjee. "I think it will be a while before they will hit the corporate end in terms of bank lending rates going up but I don't think the small increases that you are seeing right now in housing, car and consumer loans will pinch demand materially. But you can sense what is going on in the system-product prices have gone up because of the excise hike and you are seeing now EMIs will go up for a lot of people as well for those products. I think there is little bit of a squeeze. Admittedly there is little bit more money which has come in the hands of the salary-class because of the tax breaks but its not just the product price hikes which are now eating away that extra money, its also the EMIs which will go up because loan rates are also beginning to inch up."

"So a combination of two, I don't think is still enough to start pinching demand but the process has started off recoiling of the ultra lose fiscal and monetary situation which we had which was fueling demand for the last 12-18 months and this will only get worse going forward. So there will be probably more product price hikes as more excise withdrawals kick in, there will be more interest rate hikes as well going forward. So at some point you have got to ask whether all of this a combination of this starts affecting demand which has been so benign for the last few quarters, I think it will still be a few quarters away but at some point you need to keep this at the back of your mind that ultra loose situation is slowly waning and it has to now wane at a pace where demand doesn't get affected because if it does then you have got a problem with growth but maybe that is three quarters away not right here."