Union Bank hikes PLR by 25 bps

Union Bank of India has raised interest rates on all loans, including home loans, by 25 basis points to protect their margins as cost of funds is rising.

The Mumbai-based bank raised its prime lending rate (PLR) by 25 basis points to 11.5 per cent. Union Bank is the seventh bank to raise its PLR this month. One basis point is one hundredth of 1 per cent.

Union Bank's board, which met on Saturday, approved the revision in PLR recommended by the bank's asset liability committee, chairman and managing director M V Nair said. State Bank of India revised its PLR by 25 basis points to 11 per cent.

The other six public sector banks "" Bank of Baroda, Punjab National Bank, Andhra Bank, Allahabad Bank and Oriental Bank of Commerce "" which raised their PLRs this month have PLRs at 11.50.

Union Bank took into account 15 basis points increase in cost of funds since July 1, 2006 and discontinuation of payment of interest on cash reserve ratio by the Reserve Bank of India (RBI), while increasing its PLR for the second time since May 2006, Nair said.

The bank's net interest margin (NIM) had dipped to 2.94 per cent at the end of June 2006 from 3.02 per cent a year ago. The bank wants to raise its NIM to 3.07 per cent by March 2007, he said.

Its cost of deposits has increased to 4.96 per cent June 2006 from 4.75 per cent in March. Its yeild on advances moved up from 8.18 per cent in March to 8.46 per cent in June 2006.

The bank's yield on investments declined to 7.61 per cent at the end of June 2006 from 7.84 per cent a year earlier.

The bank recently raised about Rs 1,500 crore through its special deposit mobilisation scheme "" Jama Karo, Dugna Pao "" to raise long-term resources. The money doubles under the deposit scheme in eight eight years and seven months.