HDFC Bank, ICICI Bank and Kotak Mahindra have raised rates on home and auto loans, reflecting the stiffening market that may lead to the Reserve Bank of India (RBI) hastening with a lift in its policy rates from record lows to fight inflation.

These private banks have raised lending rates by as much as 100 basis points, following the hardening of market rates even as the central bank holds on to low rates to avoid derailing the economic growth. A basis point is 0.01 percentage point. RBI has started slowly rolling back some liquidity-boosting measures and has indicated it may not hesitate to raise rates. It raised the cash reserve ratio by 75 basis points in the last review.

“Auto loan rates have been marginally increased by 50 bps,” said Pralay Mondal, country head (retail assets & credit cards), HDFC Bank. “The increase in the cost of funds is being passed on to customers. It has been done to protect our margins.”

Banks are raising lending rates to maintain their profitability after they increased deposit rates in the last few months to attract funds that were beginning to go to higher-yielding stocks and real estate. Investors are seeking higher returns instead of safe bank deposits since prices are running far ahead of the interest rates that banks are offering, leading to negative real returns. With the partial rollback of tax cuts in the budget, cars, televisions, petrol and travel have become expensive, which could fuel inflation further. Food prices are rising at 18%.