Kalpana Morparia, Joint MD of ICICI Bank [Get Quote] feels that RBI's rate hike was largely expected. She also expects further sub-PLR, and PLR hikes, going forward.

According to Morparia, the rate hike will have very little impact on credit offtake. She also sees retail loan growth at around 25% in FY07.

Excerpts of CNBC-TV18's exclusive interview with Kalpana Morparia:

Give us your first impression on the policy rate hike?

I think it was largely expected, given the growth momentum that we have seen in the first quarter, which the Governor said, is higher than what their initial assumptions were.

Will ICICI Bank react to this rate hike by hiking rates in any of the sectors?

As I said in the past, we would really wait for the impact of this announcement; we will wait to see what impact it will have on our funding cost. Hence, our increase in interest rates is really a function of how our funding cost has moved.

Even in the June 8 policy, it was only ICICI Bank which followed-up immediately by announcing some lending rate hikes. And then you hiked the deposit rates as well. So costs have moved up very clearly. Why is ICICI responding to policy initiatives by RBI?

As regards to interest rates, our initial expectation was that the hike in our funding cost in March may not sustain in Q1. In the next couple of months indeed, for a short time, we found a decrease in funding cost. With the mid-term hike that was announced in interest rates, we clearly saw funding rates going up. So the hike in lending rates therefore was clearly a function of the rise in funding cost.

On the macro level, What will be the impact of the rate hike on the real economy in terms of bank lending rates and deposit rates. Are you expecting hikes in PLR, sub-PLR rates and deposit rates in the next quarter?

I would definitely see that.

Do you expect 100 bps hike in the next 15 months? Or will the Governor's softening stance or slightly dovish stance seem to indicate that it would be slightly lesser than that?

As of now, it appears so. The clear concerns in terms of inflation worries, global development and high credit growth that we have seen in the system; I see no reason to change that in a span of 5 days, given all the numbers before us.

When do you see the hikes biting growth or do you see them carrying on without any effect?

Since they have been so well-calibrated, so gradual and expectations were managed so well, it has had a very less impact. Hence, any sudden shock will have a systemic impact as well. Hence if it is gradually done, I don't see a severe impact.

Do you think in sometime, may be in a year or two, we could be leading to a dichotomy where investment demand could have led to some kind of an over capacity while retail demand could have lagged?

The Monetary and Credit Policy 2006-2007

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