Hike Season: Now it’s SBI’s Turn

The bank yesterday announced an across-the-board hike of 50 bps in lending rates.

State Bank of India (SBI), the country’s largest bank, has decided not to spare existing home loan borrowers from an increase in interest rate this time around. The bank today announced an across-the-board hike of 50 basis points in lending rates.

The bank has raised its benchmark advance rate to 12.75 percent with effect from April 9, which will increase loan costs for individuals as well as corporate borrowers.

SBI’s effective interest rates for home loans with repayment period of less than five years now is 10.75 percent and for 5-20 years is 11.25 percent. The revised interest rate on fixed rate home loans is 12.75 percent.

SBI and other public sector banks had spared existing home loan borrowers when they raised their lending rates in February.

The decision was in adherence to the finance ministry’s suggestion that existing home loan borrowers should not be burdened as those who had borrowed over a year ago had already seen a sharp rise in either their equated monthly installments or tenures.

The increase in PLR by SBI is still less than the 75-100 basis points increase in lending rates effected by other banks after the Reserve Bank of India (RBI) announced more monetary tightening measures to combat inflation.

Name Increase (bps) PLR (%)
SBI 50 12.75
ICICI Bank 100 12.75 (individual),
15.75 (corporate)
BoB 75 13.25
HDFC Bank 100 15
UTI Bank 100 15
Yes Bank 75 14.75
HDFC 50 14

The current round of interest rate hikes is meant to pass on rising cost of funds to borrowers. SBI, which is struggling to push up its deposit growth rate, had started a rate war by announcing a peak rate of 9.5 percent for 3-5 year deposits. ICICI Bank and others were pressurized by competition in announcing higher deposit rates. SBI’s deposit growth is around 12 percent against the sector’s deposit growth rate of close to 25 percent.

Earlier this week, private sector banks ICICI Bank, HDFC Bank and UTI Bank raised their PLRs by 100 basis points and public sector Bank of Baroda (BoB) by 75 basis points. BoB, however, effected a lower 50 basis points increase in interest rates for existing home loan borrowers. Similarly, Housing Development Finance Corporation (HDFC), the largest mortgage lender, raised rates for borrowers by 50 basis points.

State Bank of India’s outstanding housing loans stood at Rs 36,475 crore at the end of December 2006. Housing loans account for more than half of the bank’s retail advances and around 12.5 percent of total advances.

(Courtesy: Business Standard)