Canara Bank became the first bank to raise its benchmark lending rate and its base rate after Reserve Bank of India (RBI) raised rates on June 16. The Bangalore-based lender raised its base rate by 25 basis points (bps) to 10.25 per cent with effect from July 1. Other banks have indicated they may follow suit.
Canara Bank also raised its benchmark prime lending rate by 25 bps to 14.50 per cent. All loans disbursed by banks after July 1 2010 are linked to the base rate. The bank attributed the rise to the cost of funds. “The upward revision in base rate was required, since cost pressures were increasing. This resulted from an increase in cost of deposits. Moreover, it also improves the transmission of RBI policy action,” said Chairman and Managing Director S Raman.
Earlier this month, RBI had raised the repo rate by 25 bps to 7.5 per cent and said its fight to tackle rising prices would continue unless inflation came down to a comfortable level.
“There is a pressure on margins because of an increase in deposit rates and the savings bank interest rate. But we will wait for two-three weeks before taking a decision on revising the base rate, as we had increased the lending rates in May,” said Murali Natrajan, managing director and chief executive officer, Development Credit Bank.
Pune-based Bank of Maharashtra said the bank’s asset liability committee would meet next week to review the rates. “As of now, I cannot say whether there would be a base rate rise or not. We would take a decision in the asset-liability committee meet scheduled next week,” said Chairman and Managing Director A S Bhattacharya.
