State Bank joins the club, raises base rate by 25 bps

State Bank of India (SBI) —the country’s largest lender—on Thursday joined other banks in raising rates, announcing an increase in lending rates from the new quarter.

In its third rate increase in four months, SBI raised its base rate by 25 basis points (bps) to 9.5 per cent. It also raised the benchmark prime lending rate, the loan pricing mechanism for loans given before July 2010, by 25 bps, to 14.25 per cent. The state-owned lender has increased its lending rates by 200 basis points over the past 12 months.

“The decision to raise lending rates was in line with the upward movement in the interest rate environment,” SBI Chairman Pratip Chaudhuri told Business Standard.

The announcement came after ICICI Bank—the largest private lender—raised its base rate 25 basis points to 9.5 per cent last week. Public sector Canara Bank, Indian Overseas Bank, Dena Bank and Corporation Bank had also raised their lending rates recently.

SBI has also increased deposit rates across maturities by up to 100 basis points. It offers the peak rate of 9.25 per cent for tenors between one year and 10 years. “We decided to raise deposit rates to make them comparable with those of other banks. They are offering more than 10 per cent on deposits. We have not breached that level yet,” said Chaudhuri.

Also, the penalty on premature withdrawal of retail deposits of up to 90 days has been waived, while the penalty for deposits beyond 90 days has been reduced to 0.5 per cent from 1 per cent.

Thursday, Dhanlaxmi Bank and Punjab & Sind bank also decided to raise their lending rates by 25 basis points each. “The increase in our base rate and BLPR reflects tight monetary conditions and is in line with market trends,” said Dhanlaxmi Bank CFO Bipin Kabra.

The Reserve Bank of India (RBI) has raised policy rates for 10 times in the last 15 months, the latest increase being last month. RBI is slated to announce the first quarter review of monetary and credit policy on July 26. Other large public sector banks are still to take a view on their base rates.

“We will consider the overall situation on liquidity and credit demand in the asset-liability committee meeting that is held almost every week,” said Bank of Baroda Chairman and Managing Director MD Mallya.

Also, further rate increases depend on how the deposit growth pans out for the banking sector. “There is no liquidity pressure as of now and a decision to raise base rate will depend on the growth of deposits also. If deposit rates are increased, there will also be a need to increase the lending rates,” said Punjab National Bank Chairman and Managing Director K R Kamath. The bank might opt to wait for the upcoming policy review before revising the base rate, he added.

HDFC Bank, which currently has the lowest base rate among major banks, on Wednesday said it would review the rate within a week.