Home, auto loans to become costlier; FDs to give better returns

In a mixed bag of offerings this festive season, banks today decided to push up interest rates on home and auto loans but also announced that they would provide higher returns on fixed deposits.

Six banks including Punjab National Bank (PNB), IDBI Bank and Allahabad Bank said they will hike their base rates -- below which they can't lend -- by up to 50 basis points from tomorrow that would make home, auto and corporate loans costlier.

On the other hand, three banks -- State Bank of India (SBI), PNB and IDBI Bank -- raised their fixed deposit rates, by up to 75 basis points (0.75 per cent).

The country's largest lender SBI, however, retained its base rate at 7.5 per cent, despite the Reserve Bank of India (RBI) increasing short-term policy rates at its review meeting earlier this month.

Domestic private sector lenders Axis Bank and Kotak Mahindra Bank, and foreign lender Standard Chartered Bank, raised base rate by 25 basis points.

As per the RBI guideline, banks are supposed to review their base rate every quarter. This is the first review of the rate since it was introduced in July this year to replace benchmark prime lending rate (BPLR) system to improve transparency.

Meanwhile, SBI increased its deposit rates, as also PNB and IDBI Bank, up to 75 basis points to attract depositors to their fold, who have been getting negative returns when adjusted for inflation.

Taking note of the negative real rates to the savers, in view of high inflation, PNB raised interest rate on fixed deposit by 25-50 basis points across various maturities, while IDBI Bank hiked its rates by 15-50 basis points on various slabs effective tomorrow.

Banks' decision to increase deposit rates, which would be followed by other lenders, follow the RBI's concerns that lenders are not attracting enough depositors.

SBI, the country's largest bank, has decided to raise deposit rates from 25-75 basis points (0.25-0.75 per cent) across various maturities.

For 91-180 days term deposits, SBI will pay 5.5 per cent interest, up 75 basis points from the existing rate.

Fixed deposits with maturity period between 1 year and 554 days has been raised by 25 basis points to 7 per cent, while deposits for 555 days would attract 7.5 per cent.

The interest rate on term deposits of between 556 days and 1,000 days, under different slabs, has been increased by 50 basis points, going up to 7.75, SBI said in a statement.