Smaller banks turn more aggressive on rate hikes

As base rate — the rate below which banks cannot lend — completes one year in India, small private sector and foreign banks have been more aggressive in hiking their base rate compared to their larger counterparts.

As base rate — the rate below which banks cannot lend — completes one year in India, small private sector and foreign banks have been more aggressive in hiking their base rate compared to their larger counterparts.

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Small private banks such as Dhanlaxmi Bank, Indusind Bank, ING Vysya Bank, Yes Bank have raised the base rate by 2.4 to 3 percentage points in the last one year whereas large banks such as State Bank of India, ICICI Bank, HDFC Bank, Punjab National Bank have increased the base rate by 1.75 to 2 percentage points in the same period.

The base rate was introduced in July 2010 replacing the benchmark prime lending rate (BPLR). Loans sanctioned up to June 30, 2010 are linked to the BPLR while those sanctioned after are linked to base rate.

“Small banks have limited resources and means to fund the loan portfolio,” said Vipul Patel, director, Home Loan Advisers, an independent mortgage advisory company. “Their cost of funds is generally higher, resulting in pricing, which are likely to be higher,” he added.