SBI also raises its deposit rates by 50-100 basis points.
Customers of the country’s two largest banks – State Bank of India and ICICI Bank – will not have much to cheer about in the New Year. Both the banks on Friday increased their benchmark lending rates because of a sharp increase in the cost of funds.
While SBI increased its base rate by 40 basis points to 8 per cent, ICICI Bank followed suit with a 50-bp hike to 8.25 per cent. The new rates are effective from Monday.
| DEARER DAYS BANKS’ BASE RATE IN PERCENTAGE | |
| State Bank of India | 8.00 |
| ICICI Bank | 7.75 |
| HDFC BANK | 7.50 |
| Punjab National Bank | 9.00 |
| Bank of Baroda | 9.00 |
| IDBI Bank | 9.00 |
| Central Bank of India | 9.00 |
| Dena Bank | 8.95 |
| Kotak Mahindra Bank | 8.25 |
| Note: IDBI Bank will affect their revised base rate from January 1. HDFC Bank had last revised their base rate in early October. | |
The banks have also revised their benchmark prime lending rates. SBI has increased it by 25 basis points; ICICI Bank hiked the rate for retail and corporate advances by 25 basis points each to 14 per cent and 17 per cent, respectively. The change in BPLR will affect all borrowers who had taken loans before June 30, 2010.
The base rate is the benchmark, and any revision in this affects all other loan rates. Most government-owned banks had revised their base rate in December by around 50 basis points each.
The increase in lending rates is mainly due to a sharp increase in banks’ cost of funds. While most banks hiked retail deposit rates by 50-150 basis points in December, short-term rates have also moved up. The interest rate on three-month certificates of deposit has gone up by 250 basis points since the beginning of October.
SBI has also hiked deposit rates by 50-100 basis points on various maturities. The bank’s peak deposit rate is now nine per cent for 555 days and 1,000 days.
This is the third round of deposit rate hikes by SBI in the last three months, reflecting the tight liquidity condition. This has prompted banks to lure customers with attractive deposit rates. Earlier this week, SBI raised funds via certificates of deposit after a gap of almost three months at 9.05 per cent.
SBI tweaks teaser scheme
SBI will continue with its special home loan scheme, also known as teaser rates. However, the bank has done away with a fixed rate and opted for a fixed concession. The new scheme is offered for the next three months.
For loans up to Rs 30 lakh, the new rate is 150 bps above the base rate. A borrower will get a concession of 100 bps in the first year, and 25 bps in the second and third years. In effect, the home loan rate in the first year is 8.5 per cent.
For loans above Rs 30 lakh, the effective rate in the first year is 8.5 per cent as well, but the concession is 50 bps in the second and third years.
The new scheme aims to allay the apprehensions of the Reserve Bank of India, which was uncomfortable with dual home loan schemes. The regulator had hiked provisioning for such schemes by five times to discourage banks from selling teaser products.
For auto loans up to Rs 5 lakh, the rate will be 300 bps above base rate, but has a concession of 200 bps in the first year and 100 bps in the second and third years.
An SBI official said since this is linked to base rate, it will be operationally a floating rate scheme.
Bank will have to make provision at rate of 0.4 per cent on standard asset as against higher provision of 2 per cent for teaser loan prescribed by Reserve Bank of India.
