Auto, home loans to cost more as banks hike lending rates

MUMBAI: Country's largest private sector lender ICICI Bank and five state-owned banks on Friday raised their lending rates by about 50 basis points each, making auto, home and other loans expensive. 

Union Bank of India , Indian Overseas Bank , United Bank of India , Andhra Bank and State Bank of Bikaner and Jaipur are the public sector banks that raised interest rates today. 

The decision of the banks to raise the interest rates comes within days of the Reserve Bank increasing short term lending (repo) and borrowing (reverse repo) rates by 50 bps, with an aim to calm down inflation, which has hovered above the government's comfort level. 

Several other banks including Punjab National Bank ,Canara Bank , Bank of Baroda and Indian Bank have already increased their interest rates. 

ICICI Bank today raised its base rate by 50 bps to 9.25 per cent and Benchmark Prime Lending Rate (BPLR) to 18 per cent. The new rates will come into effect from tomorrow, it said. 

Hike in lending rates will increase the cost of credit for new borrowers and the existing ones who had obtained loans on floating interest rate. 

According to ICICI Bank, the floating reference rate, on the basis of which interest rates are determined for existing borrowers, will now be 15 per cent. The decision, the bank said, will not impact the customers who had obtained loans on fixed interest rate. 

Post the hike, the base rate of Union Bank of India, Indian Overseas Bank, United Bank of India, Andhra Bank now stands at 10 per cent. The base rate of State Bank of Bikaner and Jaipur now stands at 9.25 per cent. Besides, the BPLR of all banks except ICICI Bank now stands at 14.25 per cent. 

The Base Rate system replaced the BPLR system from July 1, 2010. However, BPLR is applicable for old customers who took loans earlier. The higher lending rates would make loans dearer for both new and existing auto, home and corporate borrowers. 

Banks have been on a rate hike spree since the Reserve Bank's decision to raise short-term key rates including the repo and reverse repo by 50 basis points in its Annual Credit Policy on May 3. The repo rate and reverse repo rate now stand at 7.25 and 6.25 basis points, respectively. 

Besides, the banking regulator also upped the savings bank deposit interest rate to 4 per cent from 3.5 per cent.

Source: Economics Times