Bank Lending rates start inching up

Source:BS Reporters / Mumbai April 24, 2010, 0:28 IST

Rates go up on sub-BPLR loans.

JM GargBanks may have kept overall lending rates unchanged despite a rise in policy rates but have started increasing rates on corporate loans in the sub-benchmark prime lending rate (BPLR) segment.

“In the sub-BPLR segment, we are scaling up rates as and when these loans come up for renewal,” said Corporation Bank Chairman and Managing Director JM Garg. He said the bank was renewing these loans at 6-6.5 per cent a year. Most sub-BPLR loans were offered around 4-4.5 per cent.

“Over the past two to three weeks, interest rates have risen about 25 basis points. The (recent) changes in policy rates by RBI have not been factored in yet,” said a Bank of India executive.

A senior Axis Bank executive said rates for short-term loans had risen 50-75 basis points over the past few weeks. One reason is that banks were offering lower rates to expand their loan books before the close of the financial year.

A senior executive at Bank of Baroda said companies seeking short-term loans had sent tenders to banks to get the best possible rates. “We have set higher cut-off points in view of the likely hardening of rates following the steps initiated by RBI. The extent of increase is in the range of 25-50 basis points,” the executive added.

According to bankers, well-rated companies can avail of a six-month loan at 6.5-7.5 per cent while the rate for a-one year loan is 7.5-8.5 per cent.

On Tuesday, RBI announced a 25 basis points increase in the repo rate, the reverse repo rate and the cash reserve ratio. The two policy rates were increased by 25 basis points in March, resulting in a cumulative increase of 50 basis points over the last one month. Similarly, CRR, used to manage liquidity in the system, has gone up by 100 basis points since January.

Banks have responded by raising deposit rates.

A Bank of India executive said there were early signs of tightening, though liquidity remained sufficient. “In June, banks will have a clearer idea of credit growth as well as the monsoon, so we are likely to see some rate action then,” said a senior Bank of India executive.

According to RBI data, banks parked Rs 31,395 crore through the reverse repo window. Bankers said with credit demand likely to rise in the coming weeks, overall lending rates would rise in the second quarter.

Bankers said the increase in rates would be linked to the introduction of the base rate system from July. RBI plans to ban lending below base rates.

Garg, however, said there was a possibility of banks having multiple base rates for various maturities. So, there will be a separate base rate for a one-year loan and another for a six-month loan.