Six more banks, including ICICI Bank and HDFC Bank, upped their base lending rates on Tuesday signalling that at least some corporates and individuals will now be shelling out more for loans, except where banks have floated special schemes for retail customers. However, most loans are still pegged to banks? Benchmark Prime Lending Rate (BPLR) and so the majority of borrowers will not be impacted by this hike.
Over the past fortnight, most banks have raised deposit rates as also loan rates. Among the notable exceptions are State Bank of India (SBI), which has only raised deposit rates. While the majority of banks have upped rates by 25 basis points, including HDFC Bank, ICICI Bank and Axis Bank, the state-owned Bank of Baroda and Canara Bank hiked their base rates by 50 basis points to 8.50%. RK Bakshi, ED, Bank of Baroda, observed that the bank needed to raise its base rate since deposit costs had risen by about 25-50 basis points over the past few months.
The hike in loan and desposit rates has been expected ever since Reserve Bank of India or RBI raised its lending rate by a quarter percentage point and the borrowing rate by half a percentage point to rein in the rising inflation. In order to bring in more transparency and effective transmission of policy rates the base rate was introduced as replacement for the BPLR from July 1, 2010. The base rate can be reviewed every quarter and according most banks have reviewed it beginning October. MV Nair, Chairman and managing director Union Bank of India said,“We will review our base rate towards the end of October based on our funding costs.?? It may be recalled that State Bank of India and ICICI Bank had raised their benchmark prime lending rates (BPLR) by 50 basis points each to 12.25% and 16.25% respectively after the central bank hiked key policy rates on July 27, 2010.