Most bankers on Monday ruled out the possibility of lending rates softening following RBI's move to suck out excess liquidity, but housing finance leader HDFC [Get Quote] sees a scope for reduction.

"There is enough liquidity in the system, softening of lending rate could happen," HDFC chairman Deepak Parekh said. Interest rates can come down despite CRR (percentage of total deposits that banks keep with RBI) hike, he said.

On home loans, Parekh said there is no upward pressure on home loan even though CRR has gone up. HDFC will wait and see how market pans out in next 3-4 days before taking any decision on the home loan front, he added.

However, a majority of bankers hinted at a stable interest rate regime despite the Reserve Bank's move to suck out excess liquidity by hiking CRR by 50 basis points to 7.5 per cent from November 10.

Two of the country's largest lenders - SBI [Get Quote] and ICICI Bank [Get Quote] - said interest rates were unlikely to change and that the hike in Cash Reserve Ratio could be absorbed.

"SBI will not change any rates for the time being and whether interest rates will come down or go up is for individual banks to decide," State Bank of India chairman and managing director O P Bhatt said.

ICICI Bank joint managing director Chanda Kochhar said: "This amount of CRR hike could be absorbed... there should not be much change in the interest rates" despite some pressure on net interest margins.

"The policy has to be seen in the context of what has happened this quarter...that huge liquidity is there and continues to pour in is a matter of concern," Bhatt said.  

The bankers, however, felt that it was for individual banks to decide whether to absorb the hike, which translates into an outgo of about Rs 16,000 crore (Rs 160 billion), or pass it on to borrowers.

Inflation seems under control but there are suppressed pressures such as high global oil prices and food prices, Bhatt said. Parekh said rising prices is high on the agenda of RBI and the Governor is using monetary tools to contain inflation.

Public sector UCO Bank [Get Quote] chairman and managing director S K Goel said there maybe a possible reduction in deposit rates to reduce the cost of funds.

Another public sector major Bank of Baroda [Get Quote] said it was not looking at lending rate hike, while declining to comment on whether the bank will reduce deposit rates.

Bank of Baroda chairman and MD Anil Khandelwal said bankers have asked Reserve Bank to make any further hike in CRR applicable only on incremental liabilities.

"Otherwise their (banks) net interest margins will be severely affected and banks have a only a limit up to which they can absorb such hikes," he said.

Private sector J&K Bank chairman Haseeb Drabu said the hike in CRR will have little effect on the bank's net interest margin.

The Monetary and Credit Policy 2007-2008