FM hopes lenders won't hike rates, but banks think otherwise

New Delhi, Aug 14 (PTI) Finance Minister of India Pranab
Mukherjee Saturday expressed hope that lenders will not raise
their interest rates in response to the Reserve Bank of
India's monetary tightening measures, but his optimism seems
at variance with the stance taken by banks so far.
"No, I don't think so. Banks are fully aware of it and
they have taken note of it and they have adjusted their plans
accordingly," Mukherjee told reporters when asked whether the
RBI's move to tighten monetary policy will affect interest
rates.
Mukherjee was talking to reporters on the sidelines of a
meeting with Public Sector Undertaking banks' chairmen.
Within hours of the Finance Minister's comments, Bank of
India announced a hike in its benchmark prime lending rate
(BPLR) by 50 basis points, which will increase the cost of
existing housing, auto and education loans.
"The bank has decided to raise BPLR by 50 basis points
from the existing 12 per cent to 12.5 per cent with effect
from August 16," the lender said in a filing to the Bombay
Stock Exchange.
From July this year, the BPLR system has been replaced by
a base rate, which is a floor for lending rates. However,
loans of existing borrowers are linked to BPLR, though they
have the option to switch over to the base rate system.
A number of other PSU banks had already hiked their
deposit and lending rates for existing borrowers and a few
lenders have indicated that they will be doing it soon.
The country's second largest PSU lender, Punjab National
Bank (PNB), raised its BPLR by 75 basis points to 11.75 per
cent, while Bank of Baroda, Corporation Bank and Oriental Bank
of Commerce increased it by 50 basis points each to 12.50 per
cent.
In addition, Union Bank and IDBI upped their BPLR by 50
basis points each to 12.25 per cent and 13.25 per cent,
respectively.
However, the country's largest lender, SBI, has so far
not hiked its BPLR.
State Bank of India Chairman O P Bhatt told reporters
Saturday, "I think there is an upward bias (on interest rates)
that will take place."
He said most of the banks have so far raised interest
rates in the range of 25-50 basis points. The highest has been
in the case of PNB, to the extent of 75 basis points, Bhatt
said.
"So I would put it (hike in interest rates by PNB) at the
extreme end. It cannot be more than that. It has to be less
than that," Bhatt said.
To a question on which loan segments will see a rise in
interest rates, he said, "That would depend on bank to bank
and their strategy."
Earlier this week, Bhatt had said SBI will soon take a
call on increasing deposit and lending rates by at least 25
basis points. MORE PTI PPB
KAB


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