PNB may raise lending rate by 25-50 bps

Feeling the pinch of rising cost of funds, public sector lender Punjab National Bank (PNB) today said it may raise prime lending rate 25 to 50 basis points.

"It seems 25-50 bps increase in PLR may come, but no final decision has been taken so far," PNB chairman S C Gupta said. The PLR of the bank is currently at 12.25 per cent.

The bank will take a decision on PLR and home loan rates in the next one week after analysing the impact on profitability and market reaction after the Reserve Bank hiked the cash reserve ratio and short term interest rates on March 30. "Options are also open to revise home loan rates," said a PNB top executive.

The existing home loan rates of PNB varies between 9.5 per cent and 11.25 per cent.

The CRR, the amount of deposit banks are mandated to park with the central bank, will go up 50 basis points to 6.5 per cent in two phases, while the repo rate is immediately raised 25 basis points to 7.75 per cent. Many private lenders such as ICICI Bank and HDFC have raised interest rates, including home loan rates, up to 100 basis points.

The bank expects loan growth to slowdown to 26-27 per cent in 2007-08 from 30 per cent in 2006-07. The total business of the bank has reached Rs 2,37,000 crore in 2006-07 from Rs 1,94,000 crore in 2005-06, a growth of 22 per cent.

The bank expects 20-22 per cent business growth in 2007-08. The bank has met all the targets for 2006-07. With both deposit rates and loan rates going up, the bank has already rebalanced its credit portfolio by taking cue from RBI policy measures to contain inflation. The bank will lend less to sectors such as real estate, but there will be no such move on productive sectors such as industry.

Meanwhile, the bank has received approval from the UK regulator for setting up a banking subsidiary in London with an initial capital investment will be Rs 200 crore for it. The subsidiary is likely to be in place by April-end.