Union Bank ups rates, HDFC Bank likely to follow

After a lull, another public sector bank has raised lending rates. With pressure on margins, Union Bank of India today increased its benchmark prime lending rate (PLR) by 75 basis points to 14 per cent, but spared existing home loan borrowers.

There are indications that the country’s second largest private lender, HDFC Bank, will raise rates by the end of the week. While the bank is expected to raise deposits rates by Friday, a final decision on lending rates pending.

A bank spokesperson refused comment. Hinduja group-promoted IndusInd Bank, which had decided on increasing its PLR by 75 basis points to 17 per cent, today announced that the increase will be effective from August 4.

 

Union Bank’s announcement came even as most public sector banks are still contemplating whether to go ahead with a hike or not even though the Reserve Bank of India had signalled last Tuesday that rates will go up. In its first quarter monetary policy review, the central bank had raised the repo rate, or the rate at which it lends to banks, by 50 basis points and said the cash reserve ratio, or the proportion of deposits that banks have to set aside, will rise by 25 basis points from August 30. Both the rates will touch 9 per cent by the end of the month.

While most private lenders have increased rates, among public sector banks, so far, only Punjab National Bank and Punjab & Sind Bank have decided to hike PLRs.

Central Bank of India has announced its intention, but is yet to effect the change. Even after Union Bank’s decision, which will be effective August 8, most banks, including State Bank of India, said they were reviewing the situation. This gives rise to suggestions that bankers will wait for cues from Finance Minister P Chidambaram on August 13 before taking a call.

In the past, the finance ministry has intervened and made banks hold on to rates, if not reverse them. Union Bank Chairman and Managing Director M V Nair said, while reviewing the PLR, the bank had factored in the revisions in CRR and repo rate, the hardening of money market rates and deposits rates as also the possible rise in delinquency due to a rate hike.

The increase will impact advances with the floating interest rate structure linked to PLR. The bank had last revised its PLR in the first quarter. The public sector bank, however, spared existing home loan borrowers from the rate hike. “The rate was kept untouched as some borrowers may not be prepared for rise in the quantum of monthly instalment,” Nair said.