Union Bank hikes base rate to 10.25%, ups rate for NRE deposits

Rate hike effective from Sept 6, 2013

Union Bank of India today became the second state-run lender after the Reserve Bank's liquidity tightening moves, to increase its lending rate by 25 basis points to 10.25%.

The rate hike is effective from today, the city-based lender said in a statement.

Andhra Bank became the first public sector lender to hike its minimum rate of lending last month after the hardening of interest rates in the call money markets following the series of liquidity tightening by RBI starting July 15 to arrest the rupee fall.

Union Bank has also revised its NRE (non-resident external) term deposit rates by up to 0.75% in the three to five year maturity.

Deposits under Rs 1 crore in the maturity will now fetch an interest of 9.50%, up by 0.50%, while the same for those from Rs one crore to Rs ten crore have been increased by 0.75% to 9.25%, it said in a statement.

Many private sector lenders like ICICI Bank, Axis Bank and HDFC Bank, have increased their lending rates, but state-run banks have been slow on that front apparently due to instructions from Finance Ministry.

Delaying the rate hike is expected to squeeze a bank's net interest margin. Union Bank's net interest margin fell to 2.63% in the June quarter, among the lowest in the peers, down from 3.01% in the year ago period.