Coming on the heels of native Indian banks having raised their lending rates to offset what they claim are increased costs, DBS and other foreign banks in India such as Standard Chartered have announced similar plans, raising their lending rates as well. All currently hover around 10%, including large Indian banks such as State Bank of India and others.
A number of factors have likely contributed to the increased rates, though some analysts, including some bank CEOs, have said the increase is not likely to have a significant impact on the economy or individuals, especially those taking out long-term loans, such as those for a car or a home. Due to the fluctuations of lending rates moving up and down every few years, a decade-long or several decades-long loan will likely experience a similar set of up and down cycles as loans taken out before the increased rates. Short-term market speculation is always fraught with uncertainty, but long-term investments will likely experience a decrease in lending rates which will cancel out the current higher rates. This is not a guarantee, of course, but cyclical market patterns are of course extraordinarily common.
Also, the increased cost of a higher interest rate is dependent on the cost of size of the loan and duration of payments, and analysts have pointed out that the grand total cost of any large loan will have more factors in play than simply the interest. This too is no guarantee, of course, but simply a reminder that interest rate are not the only thing worth worrying about.
In terms of overall market patterns, India is still in a prime position to grow economically, and investments both by Indian banks abroad, as well as foreign banks such as DBS continuing to operate in India, are likely to experience some positive trends in the coming years. While countries like the United States and many European nations deal with catastrophic debt consequences, and have kept interest rates stable to combat slow growth, many developing nations like India and others in the region have been experiencing less difficulty, and are likely to come out of the recession with certain advantages over more developed nations, and part of the announcement from State Bank of India regarding the increased lending rates was that the intention was to slow inflation. Such a move is probably a good one, in order to maintain long-term economic growth without a damaging reactionary market correction.
Interestingly, DBS lending operations (domestically, in Singapore) increased by 27% for July 2011 compared to a year previously, on the strength of sectors dealing with raw materials and agricultural. In terms of DBS’ balance sheets, the Indian operations thus not likely to impact their business significantly, and since DBS’ lending rates are in line with other banks operating in India, they will likely experience similar patterns as their competitors.
Though no one likes interest rate increases, the performance of developing nations such as India likely need some regulation to combat unstable growth, and, as the corporate leaders have indicated, market fluctuations should have them down to normal in a few yearsâ€"â€"though it would be good to hold them to such a promise.
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