INDIA BUSINESS WORLD - AUGUST 2006
THE MONTH THAT WAS...

HOME & CAR LOANS GET DEARER, BANKS RAISE PLRS 25-50 BPS

GET ready to pay more for loans. Big lenders have increased prime lending rates (PLR). These are State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), Oriental Bank of Commerce (OBC) and HDFC.

The dream home, in fact, got costlier as private sector HDFC increased lending rates by 50 basis points (bps) on Tuesday. Its PLR will be 12.25%. The bank's floating rate for home loans will now be 9.5% and fixed rate 11%.

Punjab National Bank too announced 50 bps hike in home loan rates and 25 bps increase in other lending rates. That means floating home loan interest rates have gone up to 8.75-9.75% depending on duration. Fixed home loan rate has risen to 10%. The bank raised its BPLR by 25 basis points to 11.5%, which means all other loans, including auto and personal loans, will be 0.25% dearer.

SBI raised its benchmark PLR (SBAR) by 25 bps to 11% with effect from August 2. Bank of Baroda's PLR is now 50 bps more at 11.5%. Oriental Bank increased home loan rates by 50-100 bps and also hiked deposit rates by 25 bps across all maturities.

Even after factoring in RBI's repo rate hike, the outlook for interest rates has worsened. Bond yields have risen following the announcement of Rs 9,000-crore bond auction by RBI.

Dealers said higher fiscal deficit did not augur well for the bond market. The fiscal deficit in the first three months of FY07 has risen to Rs 77,740 crore, which is 52.3% of the year's target.

Meanwhile, ICICI Bank deputy managing director Chanda Kochhar said the bank would wait and watch the movement in its cost of funds before revising lending rates. The bank's cost of funds is expected to rise as it is now offering 8% on deposits for 13 months.

The bank's rates have been outdone by Kotak Mahindra Bank, which is offering 8% on a 270-day deposit. All private banks are offering higher rates on bulk deposits.

A clutch of other PSU banks too is looking at hiking PLR. An upward revision in lending rates has come after a long time. A substantial portion of loan was disbursed sub-PLR due to surplus liquidity in the system. However, now most bankers have began discussing the prospectus of hiking rates.

Further, even as RBI had hiked rates, finance minister P Chidambaram had urged PSU banks not raise lending rates.