Major PSU banks likely to raise lending rate soon

Major public sector banks, including State Bank of India, Punjab National Bank and Bank of Baroda, are likely to soon raise lending rates making home, auto and commercial loans expensive.

As many as a dozen banks, including private sector leader ICICI Bank have already hiked their lending rate by 25 basis points in response to the tightening of monetary policy by the Reserve Bank last month.

It is a matter of time that other lenders would follow the suit as cost of fund has gone up following the 25 basis points increase of key policy rates by the Reserve Bank on June 16, experts said.

The RBI hiked key short-term lending and borrowing rates by 25 basis points (0.25 per cent) each, with immediate effect to tackle inflation. The short-term lending (repo) rate rose to 7.5 per cent and the borrowing (reverse repo) rate at 6.5 per cent.

Few banks which have substantial CASA (Current Account Savings Account) deposits do have some neutralising impact on rise in cost of fund. However, these banks will have to raise rates soon to stay competitive in the market, experts said.

Besides, banks would raise rates in order to protect their Net Interest Margin (NIM), they added.

In response to tight money supply by the RBI, banks started raising lending rate.

Yesterday, ICICI Bank increased lending rate by 25 basis points raising cost for those who had taken advances on floating rate of interest.

Besides, leading public sector lender Canara Bank also raised lending rate by 25 basis points. Other state-owned lender Indian Overseas Bank and Dena Bank have also announced increase in their lending rates by similar margin.

Earlier this week, Corporation Bank also raised base rate or minimum lending rate by 25 basis points.