SBI base rate at 7.5 pc, other PSBs at 8 pc | india | Hindustan Times
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SBI base rate at 7.5 pc, other PSBs at 8 pc

State Bank of India set the tone for the new base rate system for deposits and loans on Tuesday with a benchmark rate of 7.5 per cent, as the country prepared to usher in a new system of determining interest rates. HT reports. Signal change

india Updated: Jun 30, 2010 01:48 IST
HT Correspondent

State Bank of India (SBI) set the tone for the new base rate system for deposits and loans on Tuesday with a benchmark rate of 7.5 per cent, as the country prepared to usher in a new system of determining interest rates.

Three other public sector banks (PSBs), Central Bank of India, the Union Bank of India and Punjab National Bank set their base rates at 8 per cent.

The country's largest commercial bank said it will announce its new loan rates for new customers on Wednesday, one day before the formal start of the new lending rate regime that follows the Reserve Bank of India's mandate to banks that demands a transparent framework in which the creditworthiness of borrowers and the risk appetite of lenders will determine the rates.

SBI clarified that the existing retail customers (who have a home loan or an auto loan going) will see no change in their interest rates because of the change in regime.

On the ground SBI expects minor changes in lending rates, which have thus far been determined with respect to the Benchmark Prime Lending Rate (BPLR). A key difference is that borrowers could earlier get discounts to the BPLR. In the new system, the base rate will serve as the floor.

"According to the calculation we have done so far, we may see a change of around 25 basis points (0.25 percentage point) on either sides in our various lending rates," said O.P. Bhatt, chairman, SBI.

ICICI Bank, HDFC Bank, Axis Bank and others will announce their base rate on Wednesday and their benchmarks are expected in the range of 6.75 to 8 per cent.

"Most players in the banking sector are expected to fix the base rate between 6.75 and 8 per cent," said Paresh Sukthankar, executive director, HDFC Bank.

While experts say that corporate borrowers may see a rise in their borrowing costs because of the base rate system coming in place, SBI feels that it will not create an impact on its business.

"There will be no significant adverse impact on our corporate lending portfolio as only 3 per cent of our corporate loans are priced below the base rate," said Bhatt.

SBI also expects no impact on profitability as its net interest margin will not be impacted by the advent of base rates.