The Hindu Business Line : 3 public sector banks hike lending rates

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Mumbai Feb 14 Bank of India, Bank of Baroda and Punjab National Bank marked up lending rates by 50 basis points (effective from February 15), a day after the CRR was raised to six per cent by the Reserve Bank of India. ICICI Bank and SBI are likely to follow, according to bank officials.

Bank of India has increased its prime lending rate (PLR) to 12.5 per cent from 12 per cent.

Punjab National Bank hiked its PLR to 12.25 per cent (11.75 per cent) to protect net interest margin. The bank had last hiked its PLR on December 28, 2006 to 11.75 per cent.

Bank of Baroda has also lifted its rates by 50 basis points to 12.50 per cent (12 per cent).

Speaking at a conference, before the hike was announced, Dr A.K. Khandelwal, Chairman and Managing Director of Bank of Baroda, hinted that lending and deposit rates may go up.

"On our priority list, raising interest rates on home loans will figure last. However, EMIs on new loans could go up," he said.

Corporates can absorb higher interest rates and there is likely to be a correction in sub-PLR rates, he added.

"We are proposing to revise our deposit and lending rates," said Mr V. Vaidyanathan, Executive Director of ICICI Bank.

However, the bank is not planning to raise the cost of money for existing home loan borrowers.

The revised floating reference rate for consumer loans, including home loans, is 11.75 per cent a year.

The hike in CRR, which has upset most bankers, is a macro-economic reality, said Ms Usha Thorat, Deputy Governor of the RBI.

She added that lending to rural customers could mitigate the effect of the CRR hike on banks' bottomlines.

"An increase of Rs 1 crore in advances per branch to rural and semi-urban areas will add Rs 475 crore to banks' bottomlines. So, the answer is to go rural."

On the bourses, the BSE Sensex plunged below the 14,000 mark to touch an intra-day low of 13,805.36, before recovering to end at 14,009.9, down by 81.08 points.

Dealers talked of substantial selling in frontline banking stocks. The BSE Bankex was the top loser of the day, falling by 3.99 per cent to close at 6976.88.

More Stories on : CRR & Bank Rates | Interest Rates | Economy | Punjab National Bank

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