Banks bite the interest rate bullet

Mumbai , New Delhi, April 29 | Updated: Apr 30 2006, 06:37am hrs
A clutch of state-owned banks led by the countrys largest lender State Bank of India (SBI) hiked their benchmark prime lending rates by 50 basis points on Saturday. Besides SBI, the others to bite the bullet included Punjab National Bank, Union Bank of India and Oriental Bank of Commerce. The rate hikes would be effective May 1. Another PSU bank, Bank of Baroda, hiked the PLR by the same magnitude on Friday.

Since all the other lending rates are linked to the benchmark PLR, the move will now trigger a rate hike across the board. As of now, private sector banks have refrained from increasing rates, though they are keeping a careful watch on the situation.

SBI has increased the benchmark PLR to 10.75%. It also hiked the interest rate on home loans by 25 basis points (bps) across all maturities. Delhi-headed PNB has hiked its benchmark PLR by 50 bps from 10.75% to 11.25%, citing an increase in cost of funds. OBC has raised it from 11% to 11.5%. Union Bank of India too revised its benchmark rate upwards by 0.50% from 10.75% to 11.25%.

PNB and OBC officials said their banks would take a call on home loan rates in the next few days. PNB is likely to raise home loan rates by 50 bps.

SBI, Union Bank, PNB, BoB and OBC hike lending rates
Private banks yet to take a call, watching the situation closely
Rate hike due to pressure on margins
Deposit rates also hiked by SBI, PNB, BoB and OBC
SBI, PNB and OBC have also increased interest on deposits along with the hike in lending rates. SBI has hiked the deposit rates by 25 bps for one-three years and for three-five years. The new rates are 6.25% and 6.5%, respectively. For maturities between five and 10 years, it has been increased by 50 bps to 7%. OBC has hiked it to 7.25% from 6.75% for deposits of five years and above and PNB has increased it to 7% from 6.5% for deposits of 5-10 years.