The State Bank of India has made loans dearer by 25 basis points, paying heed to the Reserve Bank of India's monetary squeezing strategy. It has raised deposit rates by up to 100 bps. While a higher loan rate is expected to reduce money supply and check rising inflation, it may also compress economic expansion.
This is the third time the country's largest bank has raised the lending rate this fiscal, effecting a cumulative 125 bps rise since April. SBI's new base rate will be 9.50% a year, raised from 9.25% earlier. All new rates will be effective from July 11. A 25 bps increase means a rise of quarter percentage point.
Accordingly, its fresh housing and car loans will be dearer by 25 bps straightaway, as these are mostly linked to banks' base rate. Interest rates on new loans and advances are now linked to base rate since July 1, 2010.
The bank has increased its benchmark prime lending rate by the same extent. BPLR is linked to loans and advances sanctioned up to June 30, 2010. Borrowers who opted for fixed rate loans will not be impacted by the latest trend as their contracted rates will remain unchanged.
While the bank increased deposit rates for most maturities, it reduced rates for 180-240 days' tenure. It will pay 25 bps more at 7% for deposits up to 90 days while deposits for 91-189 days will fetch 7.25% a year. Depositors will get a uniform 9.25% rate for more than one-year period.
To provide depositors more flexibility, SBI has waived penalty for premature withdrawal for deposits up to 90 days and reduced the penalty by 50 bps to 0.5% for tenures beyond 90 days.
Private sector Dhanlaxmi Bank hiked its lending rates by 25 bps too. "The base rate and the BPLR will be revised to 10.25% and 19.25%, respectively, from the current 10% and 19%," the bank said in a statement. Dhanlaxmi Bank chief financial officer Bipin Kabra said: "The hike in our base rate and BLPR reflects tight monetary conditions and is in line with market trends."
A host of other lenders, including ICICI Bank, has already raised lending rates by 25 bps earlier this month.ICICI Bank raised its base rate to 9.50% while Canara Bank raised the benchmark rate by the same extent to 10.25%. Viyaja Bank, Corporation Bank and Indian Overseas Bank followed suit and have raised their base rates to 10.25% while Dena Bank has revised its base rate to 10.20%.
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