Mumbai: The country’s largest lender State Bank of India (SBI) increased its lending and deposit rates on Thursday, a day ahead of the Reserve Bank of India’s (RBI) mid-quarter monetary policy review.
SBI raised its base rate, or the minimum lending rate, to 9.8% from 9.7%, and the interest rates it offers on deposits by 0.25-1 percentage point across maturities, SBI said in a communication to the stock exchanges.
SBI also increased it benchmark prime lending rate (BPLR) by a similar 10 basis points (bps) to 14.55% effective Thursday. Base rate replaced BPLR on 1 July 2010. One basis point is one-hundredth of a percentage point.
SBI officials said the hike in interest rates was necessitated by the rising cost of money in the banking system. In the last 10 days, the average interbank call money rate has increased to 12.57% from 9.106% in August, reflecting tight liquidity in the system. Further, the recent cash outflow for advance tax payments by companies added to the liquidity tightness.
“The cost of liquidity has been going up day by day. Hence, we had to increase our deposit rates,” said an SBI official who requested anonymity. “To balance the deposit rate hike, we effected a small hike in our lending rates as well.”
In August, a few private lenders, including ICICI Bank Ltd, increased their lending rates after RBI effectively hiked the short-term rates in the banking system through a slew of measures to support a weak rupee.
ICICI Bank Ltd hiked its lending rate to 10% from 9.75%, and Axis Bank Ltd raised its base rate by 25 bps to 10.25%. HDFC Bank Ltd increased its base rate to 9.8% from 9.6% in early August.
RBI governor Raghuram Rajan is likely to hold key lending rate at 7.25% on Friday at his first monetary policy meeting, according to a Bloomberg survey of 34 economists.
SBI shares rose 6% to Rs.1,777.00 apiece in early trade on BSE, while the Sensex was up 2.6% at 20,481.33 points after the US Federal Reserve opted not to taper back its fiscal stimulus programme.