State Bank of India (SBI) has increased its base rate – the reference rate for loans – by 25 basis points (bps) to 8.5 per cent from April 25. The bank has 17 per cent share of the loan market.
The increase will make both corporate and retail loans dearer. It will also hit home loan borrowers. From January, SBI has linked its special home loan scheme to the base rate. For loans up to Rs 30 lakh, SBI’s home loan customers have to pay 9 per cent in the first year as compared to 8.75 per cent earlier. For second and third years, the rate is 9.75 per cent.
SBI, however, will continue to have the lowest base rate among major banks. (See chart).
The bank has also raised its benchmark prime lending rate (BPLR) – the erstwhile benchmark for pricing loans – by 25 bps to 13.25 per cent.
Banks had absorbed the 25 bps increase in policy rates in March.
Now, with the country’s largest lender increasing lending rates, others may follow. However, they may wait till the annual review of the monetary policy on May 3.
“The cost of funds is rising, but credit demand is not there, as the first quarter is a lean season. We may wait for the policy review for any decision,” said M Narendra, chairman and managing director, Indian Overseas Bank.
