RBI steps hit margins, Union Bank of India raises base rate by 25 bps

Sep 07 2013, 09:50 IST
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SummaryPublic sector lender Union Bank of India on Friday raised its base rate by 25 bps to 10.25% from 10%.

Public sector lender Union Bank of India on Friday raised its base rate by 25 bps to 10.25% from 10%. The new rates will be effective from September 2.

The bank increased its base rate, or the minimum lending rate, to protect its margins as cost of funds have climbed for all banks due to a raft of measures taken by the Reserve Bank of India last month to contain the steep fall of rupee. Union Bank's net interest margin fell to 2.63% in the June quarter down from 3.01% in the year ago period.

Private banks, including Yes Bank, ICICI Bank, HDFC Bank and Axis Bank, raised their base rate after RBI's measures, but public sector banks have been slow and only Andhra Bank had raised their base rate by 25 bps to 10.25% before Union Bank Larger PSU lenders like State Bank of India have indicated that they don't intend to raise rates as their wide retail deposit base has helped keep cost of funds in check.

ICICI Bank, hiked its base rate by 25 bps to 10%. Axis Bank increased its base rate by 25 bps to 10.25%, while HDFC bank had increased its base rate by 20 bps to 9.8 %. Yes Bank hiked its minimum lending rate to 10.75% from 10.50%.

Separately, Union Bank also joined most other banks in making deposit rates attractive for non-resident Indians. For non-resident external (NRE) deposits less than Rs 1 crore, the rates for 3-5-year tenure deposits were raised by 50 bps to 9.50%, while rates for deposits of Rs 1 crore to Rs 10 crore and more than Rs 10 crore were increased by 75 bps to 9.25% and 9%, respectively, for tenures between three and five years. The rates came into effect from September 5, according to a bank statement.

RBI said last month that NRI fixed deposits with duration of three years or longer would be exempt from cash reserve ratio and statutory liquidity ratio requirements, making them more attractive for banks. It also removed the ceiling on interest rates offered on NRE deposits while hiking the mark-up on FCNR deposits by 100 bps.

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