Major banks hike lending rates sharply

Our Bureaus New Delhi/Mumbai | Updated on July 29, 2011

Loans will get costlier from August 1 as a slew of banks, including Punjab National Bank (PNB), Bank of Baroda (BOB), IDBI Bank and Oriental Bank of Commerce (OBC), announced separately on Friday that their base rate will go up to 10.75 per cent. All these banks have also raised their benchmark prime lending rates (BPLRs) from this date.

A hike in the base rate and the BPLR means that home loans, car loans and personal loans would turn expensive both for existing and new borrowers. This move of the public sector biggies comes on the heels of the RBI's July 27 hike of its policy rates by 50 basis points.

Faced with increased cost pressures impacting their net interest margins, PSBs are now resorting to of increasing their lending rates to get themselves out of the thorny situation, banking industry observers point out.

For PNB, the latest move would mean a 75 basis point increase in the base rate from the existing 10 per cent to 10.75 per cent. BOB has raised its base rate by 50 basis points. IDBI Bank has gone in for a 75 basis point hike to get to a level of 10.75 per cent. PNB had last hiked its base rate by 50 basis points to 10 per cent on May 5.

OBC, a mid-size lender, also announced a 50 basis points hike to 10.75 per cent with effect from August 1.

While PNB has hiked BPLR by 75 basis points to 14.25 per cent , BOB has increased its BPLR by 50 basis points to 15 per cent. After the 75 basis point hike, IDBI Bank's BPLR will go up to 15.25 per cent. OBC has gone in for a 50 basis point hike in BPLR to 15 per cent from 14.5 per cent.

Punjab & Sind Bank will take a call on revising its base rate and benchmark prime lending rate on Saturday, its Executive Director, Mr P. K. Anand, said.

The cost-side pressure for banks is emanating from two fronts — increase in cost of term deposits and the RBI move to hike its policy rates. The pace of growth in cost of deposits has been higher than the increase in yield on advances for most banks, putting pressure on their margins.

While the bigger banks have been able to withstand the storm of increased cost of funds and more regulatory directions on provisioning, smaller banks are taking it on their chin during the first quarter this fiscal.

> krsrivats@

Published on July 29, 2011

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