SBI increases Interest Rates
Loans from the country’s largest bank have turned more expensive with the State Bank of India revising its base rate, prime lending rate (PLR) and returns on term deposits with effect from Monday. The increase will apply to home loans under its special scheme as well.
SBI’s announcement to hike its PLR from 12.75% to 13% comes after RBI increased its key policy rates by 25 basis points on January 25. A large number of public and private banks have already raised lending rates. Most state-owned banks have their PLR in the range of 13-13.5%. SBI has also revised its base rate by 25 basis points to 8.25%. The base rate, which is the benchmark for all new loans, also indicates the floor rate below which no corporate can get a loan. SBI’s rate revision is significant because a host of other lenders peg their lending and deposit rates marginally over that of SBI, which accounts for more than a fifth of the country’s banking activity.
Following the hike in deposit rates, two of the bank’s highest yielding term deposit schemes “the 555-day deposit” and “the 1,000-day deposit” will attract interest at the rate of 9.25% as against 9% earlier. Most other public sector banks offer returns in the range of 9.25% to 9.75% on term deposits.
SBI home loan rates have also gone up after the rate hikes. For new loans up to Rs 30 lakh the card rate is 1.5% above the base rate. For loans above Rs 30 lakh, the rate would be 1.75% above the base rate. Given that SBI offers a 1% discount for the first year and 0.25% discount for the second and third year for loans up to Rs 30 lakh, the rates would work out to 8.75% and 9.5% for the first year and the second and third year respectively. For loans above Rs 30 lakh, the rate would work out to 8.75% for the first year and 9.5% for the second and third year.
The present round of rate hikes may not be the last for home loans which have been inching up in the last three months. HDFC chairman Deepak Parekh had earlier indicated that he expected another round of rate hikes to push up loan rates. Most economists continue to forecast an increase in policy rates despite weak industrial production numbers.
“Assuming, in addition, only mild spillover from food and fuel to core prices, we still find inflation hovering around 8% for the rest of the year. Hence we are now forecasting four additional rate hikes of 25 bps each in 2011 (in March, May, July, and September), which would take the repo rate to 7.5%.” said Deutsche Bank in a report released here on Friday.
“The Reserve Bank of India is likely to continue to ignore the apparent weakness in industrial production, raising rates another 25 bps in March. In our view GDP is well above trend, which in turn justifies interest rates that are well above normal. The RBI helpfully indicated a couple of months ago that it thought interest rates were, at that time, around normal,” said Robert Prior-Wandesforde, head of India and South East Asia Economics.
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