| Setting the stage for an increase in lending rates across the board, the State Bank of India (SBI) today increased its prime lending rate by 50 basis points to 12.75 per cent, making both corporate as well as retail loans – auto, home and personal – more expensive.
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| A few blocks away in Mumbai's financial district, another public sector player, Union Bank of India, followed the country's largest lender and raised its PLR by 50 basis points to 13.25 per cent.
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| While SBI executives said the bank will review deposit rates after a few days, Union Bank announced a 25-100 basis point increase on term deposits.
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| The asset-liability committee (Alco) of Punjab National Bank, which has also hinted at a 50 basis point increase, is likely to meet on Friday, while other players ranging from mortgage lender HDFC to Bank of India and Bank of Baroda are expected to take a call on raising lending rates next week.
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HOW IT WILL HURT
EMI for a Rs 1-lakh home loan for 20 years will rise by Rs 34 a month
A new car loan of Rs 5 lakh with a 5-year tenure will cost an additional Rs 126 a month
For corporate loans of Rs 1 crore, the monthly installment will rise by around Rs 4,800 a month |
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| SBI said the increase in lending rates will be effective Friday, while Union Bank's PLR will go up from July 1.
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| While SBI's Alco was scheduled to review the rates this week, following the bank's board meeting on Wednesday, there was unprecedented urgency at the bank's corporate office.
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| At an unscheduled Alco meeting today, executives including Chief Financial Officer Ashok Mukund decided on the rate hike via video-conferencing.
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| SBI and a host of other public sector banks had earlier absorbed the 25 basis point increase in repo rates, or the rate at which RBI lends to banks, though some of them raised their deposit rates.
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| But following the Reserve Bank of India's double dose of 50 basis point hike each in the repo rate and the cash reserve ratio (CRR) on Tuesday, the net interest margin of most banks is under fresh pressure.
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| With PLR rising, advances linked to it, including floating rate home loans, will become more expensive. In case of car loans, only the new borrowings will attract higher interest rate.
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| For corporate loans, many of which were extended at a steep discount to PLR, banks will raise the rates when they come up for review.
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"Many companies had availed of loans at much lower rates only because there was excess liquidity in the system. Now, such loans will come up for negotiation on priority," said Canara Bank Chairman & Managing Director MBN Rao.
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Also read:
June 24: SBI gears up to hike PLR |
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