CBoP raises PLR, deposit rates

Centurion Bank of Punjab today raised its lending rates by 50 basis points, a day after ICICI Bank took the lead in pushing up interest rates.

Public sector banks have adopted a "wait and watch" stance before they could take a decision on increasing interest rates.

Centurion Bank has also raised its deposit rates by 25-50 basis points. One basis point is one-hundredth of one per cent. The bank's prime lending rate (PLR) now stands at 13 per cent, up from 12.50 per cent with effect from December 18.

UCO Bank Chairman and Managing Director V Sridar said, "We would be losing Rs 270 crore on liquidity and Rs 15 crore per annum on the profit front because of the CRR hike. We are not increasing the rates at the moment. However, we are definitely reviewing the situation."

The RBI last Friday hiked CRR by 50 basis points to 5.5 per cent in equal phases of 25 basis points with effect from December 23 and January 6. The hike would suck out a total of Rs 13,500 crore from the banking system. The RBI does not pay any interest on CRR balances, kept with the central bank as a prudential measure.

Allahabad Bank Chairman A C Mahajan said, "Definitely, the CRR hike would have an impact on the cost of funds as the funds that were earning would be impounded. However, as of now there is no intention of increasing the PLR. We have adopted a wait and watch policy and see what the other banks are doing. We will take stock of the situation based on the market feedback."

Allahabad Bank would have to take a Rs 15 crore hit on its bottomline as the CRR hike would reduce its lendable resources by Rs 250 crore. This loss of income is assumed on the basis of the profits the bank would have been able to make by lending in the call money market.

United Bank of India's Executive Director Sunanda Lahiri also wants to wait before taking the plunge.

"The CRR hike would definitely impact the effective cost of funds, which would go up. We are taking stock of the situation and reviewing our position (on hike in interest rates). We will wait and see the moves of others before taking our stand."