MUMBAI: Many more banks have raised their base rate — the benchmark rate for pricing most loans — in response to the tightening of the monetary policy. ICICI Bank, HDFC Bank, Bank of Baroda, Canara Bank and Development Credit Bank raised their base rate on Tuesday.
HDFC Bank raised its base rate from 7.25-7.5%, bringing its base rate at par with State Bank of India . ICICI Bank has announced an increase of 0.25% in the ICICI Bank Base Rate (‘I-Base’) with effect from October 6, 2010. The revised rate will be 7.75% pa against 7.50% pa at present. ICICI Bank has also increased interest rates on its special home loan scheme by 25 basis points. The scheme now offers loans at the rate of 8.5% for the first year and 9.5% for the second year. From the third year onwards, home loans will be priced at 175 bps over the base rate. Bank of Baroda and Canara Bank have raised base rate by 50 basis points each to 8.50%, while DCB too has raised it by 50 bps to 8.25%. Dena Bank , on the other hand, has decided not to revise its base rate, which is pegged at 8.25%. Besides being a benchmark for most loans, the base rate is also a floor rate and banks cannot advance any loans where the interest rate is below the base rate. Last week, Indian Bank; Indian Overseas Bank; Punjab National Bank Allahabad Bank and IDBI raised their base rate to 8.50%. Kotak Mahindra raised its base rate by 25 bps to 7.50%. However, SBI , which has a share of about 20% in the loans and deposits market, has decided to keep the base rate unchanged at 7.5%. All banks have to review their base rate in the first week of October as RBI has mandated that the base rate has to be reviewed every quarter. The new benchmark rate came into effect from July 1, replacing the prime lending rate and banks have to price all new loans in reference with base rate. Among the current set of lenders, SBI, HDFC Bank and Kotak Mahindra Bank had been offering the lowest base rate at 7.5%. Yes Bank and Dhanlaxmi Bank had set their base rate at 7% in July and have yet not taken any decision on revising the rates. Bankers justify the hike in rate to the increased cost of deposit which went up by about 25-50 bps in the last quarter for retail depositors and nearly 100 bps on bulk deposits and certificate of deposits. Most banks are now offering in the range of 7-7.5% for 1-3 year-deposits and around 8% on bulk deposits for one year. By : The Economic Times
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