The banks have absorbed and have started reacting to the sensational RBI move of increasing key rates in the economy. As stated earlier by many bankers, that the question is no longer if the rates would increase or not, but by how much would the banks increase their interest rates. As was expected, all loans will become dearer, housing, car, consumers and even corporate loans. Industry insiders say that banks, on an average, would hike their interest rates in the bracket of 50 to 100 basis points (0.50 to 1.00%).

RBI, on Tuesday, had decided to hike its short-term lending rate to banks (repo rate) and mandatory cash reserve ratio for all banks. Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR), to drain out the excessive money from the banks.

Reacting to this new development, K C Chakrabarty, Chairman of Punjab National Bank said, "Prime lending rate would go up by up to 50 basis points with the hike in CRR and repo rate." The chairman of the country's second largest public sector lender confirmed that the public’s worst fear might come true. "All the loans linked to the PLR like consumer loan, home loan, personal loan are bound to go up. At the same time, deposit rates would also be increased," he added. However, he did not specify a time frame by which new changes would be adopted by his bank. For that matter, an Asset Liability Committee would decide the quantum of increase in each segment during the course of the next few days, the PNB Chairman added.