Loans to get costlier as banks hike base rate

Some banks have raised their base rates during quarterly review. The banks that have raised lending rates include Punjab National Bank, IDBI Bank, Allahabad Bank and Axis Bank. The rates have been raised due to increase in borrowing costs.

This year in July all the banks shifted to base rate system since then this is the first time banks are changing the benchmark. Few banks have raised their deposit rates – SBI, PNB and IDBI Bank.

SS Ranjan, CFO, State Bank of India told bank might revise base rate after mid-November. He said, “While the cost of deposits has gone up we can absorb the cost for some more time.”

MV Nair, CMD, Union Bank of India said, “We will review our base rate towards the end of October based on our funding cost.”

Bank of India’s asset and liability committee will be meeting on October 4 to decide on a base rate hike. The commercial banks like PNB, IDBI Bank and Allahabad Bank have hiked their base rate by 50 basis points to 8.5%.

Axis Bank has raised its base rate by 25 basis points to 7.75%. Few weeks back the Reserve Bank of India (RBI) had raised its key lending, the repo rate, by a quarter percentage point and the borrowing rate by half a percentage point to rein in rising inflation. However there will be no immediate impact on the existing loan borrowers with the hike in base rate as about 70% of the borrowers loans are linked to the BPLR. SBI has not revised its base rate, it is unchanged at 7.5%.

Earlier, on July 27, 2010 RBI had hiked its key policy rates as a result SBI and ICICI Bank raised their benchmark prime lending rates (BPLR) by 50 basis points each. PNB had hiked its BPLR by 75 basis points.

However, the revised benchmark PLR of SBI is 12.25% while that for ICICI Bank is 16.25%. to bring more transparency and effective transmission of policy rates RBI directed all banks to introduced base rate system and from July 1, 2010.

The two big commercial banks PNB and SBI have raised their deposit rates across maturities by 25 to 75 basis point and 25 to 50 basis points across maturity, respectively. IDBI Bank has raised its deposit rates by 15 to 50 basis points.

Meanwhile, SBI has extended its teaser home loan scheme till December 31, 2010, hence the new home loan seekers can avail the opportunity.