Reversing it?s earlier stance of not raising lending rates, State Bank of India (SBI) on Thursday hiked base rate or minimum lending rate by 10 basis points (bps) to 9.8%, making all forms of credit dearer ? including home loans, auto loans and corporate credit.
SBI also increased the spread charged over the base rate for home and auto loans, which will impact new retail customers. For home loans upto R30 lakh, the bank increased its spread to 30 bps from 25 bps over base rate, while for home loans above R30 lakh, the bank increased its spread by 10 bps to 50 bps over base rate.
For auto loans, the bank increased its spread to 95 bps from 75 bps over base rate. Most loans are typically given at a margin, or a spread, above the base rate, which is arrived at as per the risk and quantum of borrowing.
Simultaneously, SBI also hiked its retail deposits rates in select buckets. For retail deposits that fall under 7 -179 days and 211 days ? less than 1 year ? the bank hiked its rate to 7.50% from 6.50%, while it hiked rates for deposits for 180-210 days to 6.80% from 6.50%. The bank also hiked interest on deposit for 1-10 years by 25 bps to 9%.
The bank has also hiked benchmark prime lending rate by 10 bps from 14.45% per annum to 14.55% per annum. The new rates are effective immediately.
Last month, the bank had said that it would rather ?bite the bullet? than increasing borrowing cost for either India Inc or retail customers despite the RBI?s measures to tighten liquidity to stem the fall in the rupee. At that time large private banks such as ICICI Bank, Axis Bank and HDFC Bank had raised their base rates, owing to the increased cost of funds. ICICI Bank and Axis Bank had raised their base rates by 25 bps each to 10% and 10.25% respectively, while HDFC Bank had raised it by 10 bps to 9.8%.
According to a senior banker at SBI, in last 45 days cost of funds have risen sharply compelling them to hike their rates and align themselves with peers. SBI expects liquidity pressures to increase during the festive season and the bank can no longer afford to absorb the increased cost, said the banker.
Loan demand has already strengthened in recent weeks as corporates have moved away from borrowing in the commercial paper market where rates have remained above 10% since the middle of July. As a result, non-food credit grew at the fastest pace in over a year at 18.40% year-on-year to R55,11,822 crore for the fortnight-ended September 6, data released this week showed. Deposit growth meantime remained anemic at 13.37% during the above mentioned fortnight.
