SBI leads fight back

Three boards stick to PLR hikes; OBC rolls back home loan rate hike partly.

The finance ministry's directive to public sector banks for keeping the hike in their benchmark prime lending rates (BPLRs) in abeyance has not cut much ice.

State Bank of India, Bank of Baroda (BoB), and Andhra Bank have stuck to the decision of hiking their prime lending rates (PLRs), while Oriental Bank of Commerce (OBC) has partially rolled back the increase in its home loan rates.

While the boards of BoB and Andhra Bank endorsed the hike in BPLR today, the executive committee of the SBI board had cleared the hike last week itself. With this, BoB and Andhra Bank's PLR stood at 11.50 per cent, and that of SBI at 11 per cent.

"The executive committee of the board, which meets every week and is empowered to take decisions on a rate hike, cleared the raise last week. Productive sectors will not be denied loans, and priority sector advances are not covered by BPLR," a top SBI executive told Business Standard.

Despite the directive from the banking division to keep the rate hike in abeyance and get it cleared by the bank boards, the government nominees on the boards did not press for a rollback at today's meetings.

"The banks need to protect their net interest margin, and be competitive. When private sector banks have their PLRs between 13.5 and 14.25 per cent, the PSU banks have a justification in raising their lending rates. We will not come in the way of their competitiveness," said a government nominee on one of the bank boards.

Senior bankers said the latest development would restore confidence in the financial system. Punjab National Bank, the fifth bank that had raised its lending rate last week, also sent signals over the weekend that it might not roll back its decision.

PNB had hiked its fixed deposit rates across all maturities of six months and above by 25 basis points to 75 basis points, effective August 7. PNB said the decision to hike deposit rates was taken following the hardening of interest rates in the government securities market, and a pick-up in credit.

A BoB release said the bank's board had "satisfied itself that all concerns of the government in the ministry's letter (dated July 28) were being taken care of, and, after thorough discussions, decided to maintain the BPLR level as announced on August 1."

The board has directed the bank to ensure sufficient liquidity, and a smooth flow of credit to the productive sector.

Andhra Bank Chairman K Ramakrishnan, too, told Business Standard that his bank had kept the BPLR unchanged, but would make sure that the credit need for the productive sector was met.

The OBC board suspended the bank's decision to hike the interest on home loan rates by up to 75 basis points for home loans up to Rs 20 lakh, but kept the 100-125 basis points' hike on home loans above Rs 20 lakh unchanged. One basis point is one-hundredth of a percentage point.

OBC's Chairman and Managing Director K N Prithviraj said the bank's asset liability committee (ALCO) would take another look at the interest rate for home loans below Rs 20 lakh on September 30.

The move to use Rs 20 lakh as a cut-off mark was made keeping in mind the fact that small borrowers dominate that segment, he added.