Home, auto, education loans get dearer for existing borrowers

Home, auto and education loans from a host of banks have become costlier for existing borrowers by up to 75 basis points, after lenders hiked interest rates following the Reserve Bank of India's (RBI) move to tighten monetary policy.

While the country's second-largest public sector lender, Punjab National Bank (PNB), raised its benchmark prime lending rate (PLR) by 75 basis points to 11.75 per cent, Bank of Baroda, Corporation Bank and Oriental Bank of Commerce increased it by 50 basis points each to 12.50 per cent.

In addition, Union Bank and IDBI upped their BPLR by 50 basis points each to 12.25 per cent and 13.25 per cent, respectively.

However, the country's largest lender, SBI, has so far not hiked its BPLR.

"The borrowers linked to BPLR will see a hike in interest rates... Home, auto and education loans will get costlier," PNB Chairman and Managing Director K R Kamath told PTI.

He, however, said the existing borrowers have the option to switch over to the base rate, below which the banks cannot lend. PNB has fixed its base rate at 8 per cent.

Other bank officials also echoed similar views.

From July, bankers moved to a new system of benchmarking their lending rates, namely the base rate, which has replaced the PLR. As such, while fresh loans will be linked to the base rate, existing borrowing from banks are on the basis of the PLR. Existing borrowers can also shift to the base rate system.

The RBI, in its monetary review on July 27, raised the short-term borrowing (reverse repo) rate by 50 basis points and lending (repo) rate by 25 basis points.

It, however, kept the cash reserve ratio -- the portion of deposits banks are required to park with the central bank in cash -- unchanged, due to the difficult liquidity position in the markets.

When asked if there could be a further PLR hike, Kamath said, "It would depend on the RBI policy measures."

Analysts expect the RBI to further up its short-term rates at its mid-quarterly monetary review on September 16, if inflationary pressures exist.

Inflation stood at 10.55 per cent in June. Food inflation was 9.53 per cent during the week ended July 24.