The Hindu Business Line : PSU banks mulling lending rate hike

New Delhi April 3 It's now the turn of public sector banks to hike lending rates, including interest rates on housing loans. Close on the Reserve Bank of India's recent announcement to hike the cash reserve ratio by 50 basis points and the repo rate by 25 bps, PSU banks are gearing up to hold meetings to discuss the unfolding interest rate scenario.

"Our asset-liability committee will meet within the next fortnight to review the interest rates. There are pressures to hike our lending rates," the Chairman and Managing Director, Punjab National Bank, Mr S.C. Gupta, told Business Line.

He said that he did not foresee the PLR being scaled up by more than 50 basis points. However, the lending structure for retail loans including housing loans would be looked at separately. "We will take a decision later, but as of now I do not see a more than 50 basis points hike in PLR. The hike in interest rates for individual loans such as housing loans may be different," he said.

The Executive Director, Punjab and Sind Bank, Mr G.S. Matta, said that the bank would have to look at the interest rate scenario in totality before taking a final decision. "We will have to look at our lending rates in view of the evolving situation," Mr Matta said. However, he pointed out that the bank had already recently hiked its rates on housing loans slightly and that could have a bearing on the decision that is taken by the bank.

Bankers said that the cost of funds was going up in such a manner that there was no way PSU banks could stay away from hiking their lending rates.

"There have been three rounds of CRR hikes. Cost of deposits is going up by an average of 1-1.5 per cent. This is proving to be a problem," Mr Gupta said.

Mr U.S. Bhargava, General Manager, PNB, also said that banks are finding it hard to tackle the rising cost of funds. "Our cost of funds is going up. In such a situation we have no way out but to review our lending rates," Mr Bhargava said.

On housing loans, Mr Bhargava pointed out that PNB's retail lending rates are comparatively much lower than that of its private sector counterparts, providing a good enough case for a hike. "Our rates are nine per cent for a five year loan which goes up to 10 per cent for a 25 year loan as against the private sectors lending rates for the sector of 12-13 per cent," he said.

Mr Bhargava, however, said that the decision on hiking car loans might not be taken immediately. "We have a system of reviewing car loans once in a year. We have already reset the loan upwards by 100 basis points effective April 1," he said.

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