The Hindu Business Line : As cost of funds rises, banks hike lending rates

Corporate borrowers have to pay more for loans taken by them. A number of private banks have announced a hike in lending rates or are in the process of doing so. Rising cost of funds has prompted the latest hike.

Most banks have increased deposit rates by close to one percentage point on their term deposits.

ICICI Bank hiked its prime-lending rate (PLR), the rate given for best borrowers, from 11.75 per cent to 12.75 per cent on Tuesday. The bank had increased its PLR by 0.25 percentage point a little over a month ago. UTI Bank also hiked its PLR by one percentage point to 13 per cent on Tuesday.

Mr Dipak Gupta, Executive Director, Kotak Mahindra Bank, said, "Our costs have gone up. We will consider the issue of hiking our PLR at our next ALCO meeting." Kotak Mahindra Bank's PLR is currently at 14 per cent. Mr Gupta said that lending rates could see at least a 0.50 per centage point increase soon.

Centurion Bank of Punjab (CBoP) is also reviewing its lending rate. Mr Anil Jaggia, Chief Operating Officer, CBoP, said, "Our ALCO is meeting on March 21 and we will consider the need to hike rates. Our PLR is currently 11.5 per cent."

Some others have already made the increases and are not contemplating an immediate increase. Yes Bank,,for instance, had raised its prime-lending rate in mid-February by 0.75 percentage points to a level of 12.50 per cent.

IndusInd Bank plans to keep its rates unchanged for now. Mr Suresh Pai, Executive Vice-President, IndusInd Bank, said, "Our BPLR is 13.50 per cent, which is a single reference point. The spread on this rate is reckoned after taking into account the term premium, credit risk and the relationship discount/premium. We do not have any plans to change the BPLR at this stage."

Mr Pai discounted the possibility of losing customers because of rate hikes. He said, "Normally changes in rates do not wean away the customers. The customers look at the overall comfort of service and the products."

Incidentally, none of the public sector banks has announced any rate hikes.

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