Soon after unveiling of the Reserve Bank's mid-quarter policy review, country's largest lender State Bank of India on Friday said lending and deposit rates will go up in view of the festive season demand.
"Now the busy season has started so there is a huge credit demand and banks are scrambling for deposits. Deposit rate, I think, will go up and accordingly to that lending rates can also go up," SBI Chairman Pratip Chaudhuri said.
Banks would first raise the deposit rates and then they will calibrate the lending rate, he added.
On Thursday, SBI increased its base rate by 0.1 per cent to 9.80 per cent, becoming the first major state-run bank to hike lending rates after short-term rates rose as a result of RBI's liquidity tightening moves announced in July.
SBI also increased the spreads on auto and home loans by as much as 0.20 per cent, which will affect new borrowers.
Home and auto loan borrowers typically pay a margin, or a spread, above the base rate, which is arrived at as per the risk and quantum of borrowing.
Noting that the base rate or the minimum lending rate is not a function of policy rate, Chaudhuri said it is a function of bank's liquidity position and ability to meet the deposit and lending situation.
On the deposits front, SBI increased its offering for products maturing in 7 days, 179 days, 211 days and less than a year by one percentage point to 7.50 per cent each.
Commenting on the policy review, Canara Bank Executive Director A K Gupta said: "There will not be much impact on the interest rate immediately."
The RBI has done a balancing act. Much of the borrowing by banks are from the MSF window and reduction of 0.75 per cent will lower the cost of fund, Gupta said.