News APP

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  gplay

This article was first published 13 years ago
Rediff.com  » Business » Banks make loans more expensive

Banks make loans more expensive

October 01, 2010 02:59 IST
Get Rediff News in your Inbox:

Lending rates have started rising after more than two years. Five banks have increased their benchmark lending rate -- or the base rate -- even as the country's largest lender, State Bank of India, decided to maintain status quo. All corporate and retail loan rates linked to the base rate will now go up.

Among government-owned lenders, Punjab National Bank, Allahabad Bank, and IDBI Bank have raised their base rate by half a percentage point to 8.5 per cent. Private sector Axis Bank raised its base rate by 25 bps to 7.75 per cent, and foreign lender Standard Chartered hiked it by 25 bps to 7.5 per cent. The new rates will be effective from tomorrow.

At the same time, SBI raised rates on some maturities of deposit rates, but left its key base rate unchanged at 7.5 per cent.

The central bank will draw comfort from the fact that banks have started reacting to monetary policy signals by hiking their lending rates. Reserve Bank of India has increased policy rates by 100-150 basis points since April to tackle rising prices.

Though banks have raised benchmark prime lending rate in recent times, the action was intended to prompt customers to shift to the new base rate regime, which became effective from July 1. The base rate is reviewed at least once every quarter.

"The rising cost of resources and monetary transmission of repo rate hikes made us revise the lending rate," PNB Chairman & Managing Director K R Kamath said. An increase in the repo rates by RBI pushed up borrowing rates. RBI raised its key repo rate three times by a quarter percentage point each since July 1, when banks last revised their base rates.

PNB expects its margins to remain at current levels, Kamath said. PNB said it will continue to give home loans at 8.5 per cent.

SBI raised rates on deposits of some maturities by between 25 basis points and 75 basis points effective from October 1. This is the second round of deposit rate increases, which Chief Financial Officer S S Ranjan described as reflecting hardening rates in the system. It had raised them by 25-150 basis points in August.

"The bank has reviewed the base rate and decided to continue with the existing rate for the present. We can take a call on the base rate in the October-December quarter," Ranjan said.

PNB and IDBI Bank also raised term deposit rates by 15-50 basis points in select categories. PNB said this was driven by the concern shown by RBI in the last mid-quarter review of credit policy on the negative real rates to the savers in view of high inflation. With this revision, the peak rate of domestic retail deposits for PNB will now be 8 per cent for a maturity bucket of 8-10 years.

Rates in the short-term money market have hardened by over 150 basis points in last few months, as banks have been raising resources through certificates of deposit.

Get Rediff News in your Inbox:
Source: source
 

Moneywiz Live!