The Hindu Business Line : SBI hikes lending rates by 50 basis points

On Tuesday, State Bank of India, the country's largest lender, announced a 50 basis points rise in its prime lending rate (PLR) to 11.5 per cent effective December 27.

Leading private sector banks such as ICICI Bank and HDFC Bank have hiked lending rates earlier this month following the 50 basis point increase in the Cash Reserve Ratio to 5.50 per cent by the RBI on December 8. Last week, the public sector Oriental Bank of Commerce revised PLR by 25 basis points to 11.75 per cent.

Analysts expect other banks to follow as spreads (difference between lending and deposit rates) come under pressure with a rise in cost of deposits.

An SBI official said the hike in the lending rate would partly neutralise the impact of the recent mark up in CRR and a rise in cost of deposits. SBI has pushed up deposit rates twice this year by about 100 basis points. (SBI had lifted term deposit rates by 25 to 75 basis points on December 11.)

SBI had earlier jacked up its PLR in April by 50 basis points and later effected an upward adjustment by another 25 basis points to 11 per cent in August.

Mr O.P. Bhatt, Chairman of SBI, had recently told Business Line that the CRR hike would impact banks' profitability in two ways. One, CRR does not earn interest while funds are impounded by the RBI; second, the impact on over-all liquidity will push the cost of funds for banks.

With the revision in PLR, all advances linked to it, including working capital loans, will be adjusted with immediate effect. About 70 per cent of SBI's existing loans are on floating basis, linked to PLR. This will help the bank to improve its interest income from its existing loan book, said an analyst.

After the CRR hike, ICICI Bank was the first to raise lending rates, followed by HDFC Bank. SBI's PLR at 11.50 per cent is still lower than that of ICICI Bank at 13.75 per cent and 13 per cent of HDFC Bank.

"A section of the market was worried over whether PSU banks would be able to raise their lending rates but with SBI going ahead, other PSU banks are expected to follow. It will protect banks' margins," said Mr Vishal Goyal, Banking Analyst, Edelweiss Research.

SBI shares rose 2.62 per cent to Rs 1,245.90 on BSE on Tuesday from Friday's close of Rs 1,214.05.

More Stories on : Interest Rates | Public Sector Banks | State Bank of India

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Rain & sleet in North, alert on fog

Daewoo buy: Videocon seeks 13 pc discount on agreed price

GMR-Siemens to redefine airport experience in Hyderabad

`We cannot go back on Singur'

SAP bets big on small, medium size firms

Sensex gains 236 points; volumes remain low

SBI hikes lending rates by 50 basis points

`Banks' deposit mop-up unlikely to affect MFs'

`Virus threats, spam to remain areas of security concern in '07'

Govt may allow FDI in sector-specific retail trade

Retail sector sees big bucks, big players in 2006