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Were you disappointed that the RBI’s rate cuts last year didn’t reduce your EMI (equated monthly instalment)? Well, now you have reason to rejoice, as the RBI’s recent rate hikes probably haven’t affected you either.
Banks, particularly the public sector banks, have not taken their cues from the central bank in changing setting the interest rates that they charge borrowers in recent times.
Therefore, as the RBI pegged down its repo rate by 125 basis points (bps) between April 2012 and May 2013, banks lowered their average base rate (the minimum lending rate) by just 55 bps. From May 2013 onwards, as the RBI ignored plaintive pleas from India Inc to raise the repo rate by 75 bps; banks didn’t react. Their average lending (base) rate has only gone up by a measly 5 bps this year. Banks have not marched in step with RBI mainly because their lending rates are a function of the cost of deposits.
If you belong to that rare breed of people who always have surplus cash sloshing around in their bank accounts, you have even more reason to be content. Banks have raised their deposit rates much faster than their lending rates in recent times. On an average, rates offered on deposits have increased by 30 bps across banks in the last one year.
But your experience may vary slightly depending upon whom you bank with. For instance, galloping loan defaults may have forced PSU banks to keep a tight leash on lending rates this past year. These banks barely changed their lending rates, while the average base rate for private banks has gone up by 25-40 bps.
Out of the 26 state owned banks, only three increased their base rates this year.
SBI, Indian Bank and Allahabad Bank have been the three banks that have pegged up lending rates. But SBI was just catching up with its rivals; it had the lowest base rate of 9.7 per cent at the beginning of the year and then hiked it by 30 bps.
Private sector banks, though have raised their loan rates with greater alacrity. Out of the 20 private sector banks, 12 have pegged up their lending rates.
The moral of this story is: If you want your EMI to stay put, prefer slow state-owned banks over the zippier private ones.
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