PNB, Allahabad Bank, PSB raise base rate 50 bps.
A week after the Reserve Bank of India (RBI) raised key policy rates and asked banks to restrain loan growth as deposit mobilisation remains slow, three state-owned banks responded today by increasing their benchmark lending rates and deposit rates.
Punjab National Bank (PNB), the country’s second-largest state-run bank, raised its base rate by 50 basis points (bps) to 9.5 per cent. Similarly, Allahabad Bank and Punjab & Sind Bank (PSB) also increased their base rate by 50 bps to 9.5 per cent. The hike in base rate will increase loan rates for all new loans and existing base rate-linked loans. All these banks also raised their benchmark prime lending rate (BPLR) by 25 to 50 bps, which will affect their existing customers. BPLR is the erstwhile benchmark loan rate regime, which was replaced by base rate from July last year. More banks are expected to follow suit.
With this hike, the base rate of these three banks has gone up by around 150 bps in the last four months.
| THE INCREASE | ||||
| Bank | Base rate (%) | BPLR (%) | ||
| Revised | Increase (bps) | Revised | Increase (bps) | |
| Punjab National Bank | 9.5 | 50 | 13.00 | 50 |
| Allahabad Bank | 9.5 | 50 | 13.50 | 25 |
| Punjab & Sind Bank | 9.5 | 50 | 14.25 | 25 |
| Source: Banks | ||||
“Our credit growth is robust and the bank will have to mop up deposits to match this loan growth. Going forward, the pressure on interest rate is likely to come down on the back of increased government spending, which will increase the liquidity situation,” said M R Nayak, executive director, Allahabad Bank.
During the third quarter review of the monetary policy last week, the central bank raised the repo and reverse repo rate by 25 bps each to 6.5 per cent and 5.5 per cent, respectively. It had raised concerns on the tardy pace of deposit growth amid surging growth in advances, as this has the potential for asset-liability mismatch for banks.
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As on January 14, bank credit growth was 23 per cent year-on-year and deposit growth was 16.4 per cent. The RBI had projected credit and deposit growth of 20 per cent and 18 per cent, respectively, for 2010-11. All these banks also increased their deposit rates to attract more depositors.
PNB increased its deposit rates by 25-100 bps across various maturities, where deposits of 1,111 days will attract the maximum rate of interest at 9.25 per cent. “The rise in deposit rates by 25 to 100 bps for FDs of various maturity periods will compensate savers from the negative real rates in view of high inflation and in line with the concerns of the RBI governor, in the third quarter review of credit policy,” PNB said in a statement.
Similarly, Allahabad Bank raised its interest rate on domestic term deposits for 400 days from eight per cent to 8.50 per cent. PSB increased deposit rates by 15 bps to 100 bps. The peak rate of the bank is 9.25 per cent for 1,000 days.