Mumbai: Five state-run banks hiked their lending rates on Monday, mostly by up to half a percentage point, taking a cue from the country’s second-largest public sector lender Punjab National Bank (PNB), which raised its loan rate late last week.
IDBI Bank Ltd, Indian Bank, Indian Overseas Bank (IOB), Allahabad Bank and Dena Bank have all raised their base rates or benchmark prime lending rates (BPLR), or both.
The base rate, the new benchmark rate below which banks are not allowed to lend, replaced BPLR from July. BPLR is being raised now for borrowers who had taken loans under the earlier system.
IDBI and Dena Bank raised their BPLRs to 13.75%; IOB to 13%, and Indian Bank to 13.25%, all up 25 basis points. Allahabad Bank’s BPLR went up 75 basis points to 13.25%. One basis point is one-hundredth of a percentage point.
As for base rates, Dena Bank has lifted its lending rate to 8.95% and IDBI to 9%, both up 50 basis points. Dena and IDBI have also increased their deposit rates by 25-150 basis points.
“We have done the hike in line with the prevailing market rates. Other banks are also hiking their rates,” IDBI chief financial officer P. Sitaram said.
Banks are hiking their lending rates to protect their margins, which are under pressure on account of the muted loan growth in the system and even lower deposit growth.
Indian banks have seen a credit growth of 9.9% this fiscal year, and deposits have grown at 6.6%, Reserve Bank of India (RBI) data show.
RBI has set a target of 20% credit growth for banks in fiscal 2010-11 and an 18% growth in deposits.
Many large banks, including State Bank of India (SBI) and ICICI Bank Ltd, hiked their lending rates in October to support margins.
Early last week, SBI hiked its deposit rates by up to 1.5 percentage points. Other leading lenders that have recently increased their base rates by 25 basis points include IndusInd Bank Ltd and Kotak Mahindra Bank Ltd.
PTI contributed to this story.