State Bank of India chairman Dinesh Khara has reportedly said commercial lending rates will rise 40-90 basis points as the Reserve Bank of India (RBI) hikes the policy repo rate to fight elevated inflation in the country.

The SBI chief was speaking to BQ Prime at the World Economic Forum in Davos. The RBI had earlier surprised the street when it raised the repo rate by 40 basis points to 4.40 per cent. It had also increased the cash reserve ratio (CRR) by 50 basis points to four per cent.

The Indian central bank is widely expected to again raise the repo rate by 30-40 basis points at its June meeting.

Following the RBI decision, banks had raised lending rates that are linked to the external rate such as the repo rate by 40 basis points and also their marginal cost of funds based lending rate (MCLR).

Some economists have forecast the RBI could raise the repo rate to 5.15 per cent by August and take it to 5.5-5.75 per cent in the current cycle. RBI governor Shaktikanta Das had recently said that it is premature to assume that the repo rate will be increased to 5.15 per cent.

According to Khara, if there is favourable data from other indicators, the repo rate may not be hiked to 5.15 per cent, though it will look to normalise the liquidity in the banking system.

He added that retail customers are seeing 9-10 per cent increase in salaries which will keep the equated monthly instalment to net monthly income at similar levels.

Among lenders, HDFC Bank had raised MCLR by 25 basis points across tenors while Bank of Maharashtra made loans dearer 15 basis points, following peers such as SBI, Kotak Mahindra Bank, ICICI Bank and BoB.

SBI has raised its external benchmark lending rate on home loan by 40 basis points to 7.05 per cent which will be effective from June 1.