PNB may raise corporate lending rates

Country's second largest PSU bank, Punjab National Bank plans to raise the lending rates for its prime customers such as corporates, who get loans at softer interest rates, to partly offset pressure on profitability due to rise in deposit rates.

"We have headroom to realign sub-PLR by 25-50 basis points, while keeping the PLR intact," PNB Chairman S C Gupta, said when asked if the bank had any plan to hike the lending rates. However, Gupta said there was no plan to raise interest rates on housing and retail loans. The prime lending rate of PNB was last raised in August by 0.25 per cent to 11.5 per cent. Like other banks, PNB also lends at a lower or sub-PLR to good rated corporates and other big clients due to competition in the market.

But with margins coming under pressure following 0.25-0.75 per cent increase in deposits rates on December 22, the bank was considering to pass some of the additional cost of funds to borrowers.

PNB raised deposit rates to attract new customers and retain existing customers as other banks have hiked rates.

"The net interest margin will be above 4 per cent this financial year despite deposit rate hikes, by increasing the yield on advances slightly," he said.

He said banks were under pressure to raise deposit rates following RBI's decision to hike repo rate in October and cash reserve ratio in December. The cost of deposits of the bank was likely to increase slightly to 4.50 per cent from 4.35 per cent.

Gupta said liquidity would come under pressure in the last quarter of the financial, during which credit demand was highest.