AllBank joins rate rebels

Amid the hullabaloo over public sector banks (PSBs) raising their prime lending rates (PLRs), there was a sixth bank which raised its PLR without being noticed.

The Kolkata-based Allahabad Bank increased its PLR by 25 basis points to 11.50 per cent with effect from August 1, same as the other five PSBs including State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), Andhra Bank and Oriental Bank of Commerce (OBC).

The difference between Allahabad Bank and the other banks is that its asset liability committee (ALCO) is authorised to change only the deposit rates and all increases in lending rates are required to be ratified by the bank's board of directors.

SBI, BoB and Andhra Bank yesterday defied the wishes of the finance ministry and stuck to their asset-liability committees' decision to hike PLRs, while OBC withdrew increase in rates for loans below Rs 20 lakh.

For Allahabad Bank, the hike from August 1 was the second increase in a span of one month. In July, the bank had raised its PLR by 25 basis points to 11.25 per cent.

A C Mahajan, who took over as chairman of Allahabad Bank after the decision to hike PLR was taken, told Business Standard that the board's concurrence was sought before the hike was given effect.

O N Singh, who retired as chairman and managing director of Allahabad bank at the end of July, said "in Allahabad bank, it is the board which takes decisions on revision in the PLRs."

The board of PNB is still to meet to ratify the bank's ALCO's decision to raise PLR. SBI's executive committee of the board, which meets every week and is empowered to take decisions on rate hikes, had cleared the increase in PLR last week.

Despite a directive from the banking division to keep rate hikes in abeyance and get it cleared by their boards, the government nominees on the boards of BoB and Andhra Bank did not press for a rollback at yesterday's meetings.

PNB has sent signals over the last weekend that it might not roll back its decision. The Delhi-based bank hiked its fixed deposit rates for maturities of six months and above by 25 basis points to 75 basis points, effective August 7.

The bank said the deposit rates were hiked taking into consideration the hardening of interest rates in the government securities market, and a pick-up in credit.