State-owned Bank of India today said it will increase its lending rate by 50 basis points for existing borrowers, hours after the Finance Minister exuded confidence that banks will not raise their interest rates in response to the RBI's tightening of monetary policy.
The bank has decided to increase the Benchmark Prime Lending Rate (BPLR) by 50 basis points from the existing 12 per cent to 12.5 per cent with effect from August 16, BoI informed the Bombay Stock Exchange.
This would make the floating rate for existing home, corporate and auto loans costlier, as these are linked with BPLR.
Earlier in the day, Finance Minister Pranab Mukherjee, after meeting chiefs of public sector lenders in New Delhi, said, "No, I don't think so. Banks are fully aware of it and they have taken note of it and they have adjusted their plans accordingly."
The Finance Minister said this in response to a query on whether RBI's tight monetary policy will affect interest rates.
BoI's hike in lending and deposit rates follows similar decisions by peers like ICICI Bank, Punjab National Bank, Union Bank of India and HDFC Bank, which have also raised interest rates following the upward revision in key policy rates by the Reserve Bank of India last month.
The RBI, in its monetary review on July 27, raised the short-term borrowing (reverse repo) rate by 50 basis points and the lending (repo) rate by 25 basis points.
It, however, kept the cash reserve ratio, the portion of deposits banks are required to keep with the central bank in cash, unchanged due to the difficult liquidity position in the markets.