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SBI, UBI hike lending rates

Other banks are likely to take this upward cue from SBI. All loans disbursed by banks are benchmarked to their PLRs.

india Updated: Jun 26, 2008 20:26 IST
BS Srinivasalu Reddy

Want to go in for a home loan today? Get ready to pay a higher rate, higher equated monthly instalments. On Thursday, two leading public sector banks – State Bank of India (SBI) and Union bank of India (UBI) – raised their prime lending rates (PLR) by 50 basis points (100 basis points is 1 percentage point). This follows Reserve Bank of India’s hiking its key interest rates by 50 basis points on Tuesday.

While SBI on Thursday announced that it will raise its benchmark prime lending rates by 50 basis points, from 12.25 per cent to 12.75 per cent, with effect from Friday, UBI raised its prime lending rate (PLR, or rate of interest at which banks lend to their safest customers like blue chip companies) to 13.25 per cent.

Other banks are likely to take this upward cue from SBI. All loans disbursed by banks are benchmarked to their PLRs.

“SBI’s PLR is still the lowest in the entire industry,” a senior SBI official, who did not wish not to be identified, said. SBI is restoring the PLR to the level that existed in January 2008. The bank had cut its lending rates by 0.5 percentage point in February 2008.

With the current upward revision, flexible rate home loan and personal loan borrowers from these banks would see their component of interest in the equated monthly instalments (EMI) go up by Rs 34 per lakh per month on a 20-year loan and Rs 32 per lakh per month on a 15-year loan. Though EMIs may not be reset immediately, the move would increase the tenure of their loans.

Corporate borrowers will be hit badly. “Companies will find it difficult to raise money,” said Nimesh Kampani, chairman, JM Financial. “Project costs will go up. It’s bad news for corporate India.”

This rise, however, will not be across the board. “Several companies have the ability to bargain for finer rates,” said a senior banker, who requested anonymity.

Retirees can rejoice: UBI raised its deposit rates by 25 to 100 basis points across different maturities with effect from July 1, 2008. “Large segments of the public view deposits as an investment avenue giving safe and assured returns on their savings,” said TY Prabhu, executive director, UBI. “To protect their interests, the bank has decided to hike interest rates on deposits.” The hike will help senior citizens to bridge the gap between spiralling prices and their stagnating incomes to an extent.