SBI hikes PLR by 0.5%, others may follow suit
If you were looking to apply for a home loan in the New Year, there is bad news ahead.
By TNN |
MUMBAI: If you were looking to apply for a home loan in the New Year, there is bad news ahead. Loans have turned expensive, with the country’s largest bank, the State Bank of India (SBI) hiking its lending rates. The bank has raised its prime lending rate (PLR) from 11% to 11.5% with effect from December 27. Another public sector lender Oriental Bank of Commerce (OBC) has also decided to raise its PLR to 11.75% from 11.50%. SBI is currently offering a 50 bps discount on rack rates on floating rate loans up to January 3, 2007. The discounts will continue. But rates will rise as discounts are now on a revised rate card with higher rates.
Earlier, home loans up to 15 years came for 8.75% compared with the list rate of 9.25%. Similarly, 20-year loans were available for 9.25% against the list rate of 9.75%. Now, the list rates have moved up by 50 bps although the discount stays. This means the customer would have to pay 9.25% for a 15-year loan and 9.75% for a 20-year loan. HDFC Bank too has indicated that the CRR hike would make home loans more expensive. ICICI Bank has already hiked its rates.
The hikes come in the backdrop of tightening liquidity, with call rates closing at a six-year high of 11.5%. Call rates shot up because of the impact of a quarter percentage point hike in cash reserve requirement coupled with advance tax outgo. Over the past few days, funds to the tune of Rs 40,000-Rs 50,000 crore have been drained out of the banking system. Banks are also not in a position to draw refinance from RBI as the central bank lends against government bonds. Currently, bank investments in bonds are just enough to meet the statutory requirement and there is no surplus available for borrowing through repos. While around Rs 6,500 crore has flown out of the system due to the first phase of the CRR hike coming into force, more than Rs 35,000 crore has been drained off due to advance tax outflows.
Another impact of the rise in rates could be that the upward pressure on the rupee could continue.
For SBI the rate hike was a thought out decision. The bank had waited to see what would happen after the CRR hike came into effect last weekend and only then sought its board’s approval to hike lending rates. The decision was taken following the bank’s board meet in Kochi on Tuesday.
OBC’s revision in rates will come into effect from January 15. “In order to give some notice to our borrowers we decided to raise the rates from mid-January,” said KN Prithviraj, CMD of OBC. The bank has substantially raised deposits rates. “The housing rates that are linked to our PLR is revised by 25 bps,” he added. The bank has raised deposit rates for one year from 7.75% to 7%, while on a five-year deposit it offers 8.25%.
Earlier, home loans up to 15 years came for 8.75% compared with the list rate of 9.25%. Similarly, 20-year loans were available for 9.25% against the list rate of 9.75%. Now, the list rates have moved up by 50 bps although the discount stays. This means the customer would have to pay 9.25% for a 15-year loan and 9.75% for a 20-year loan. HDFC Bank too has indicated that the CRR hike would make home loans more expensive. ICICI Bank has already hiked its rates.
The hikes come in the backdrop of tightening liquidity, with call rates closing at a six-year high of 11.5%. Call rates shot up because of the impact of a quarter percentage point hike in cash reserve requirement coupled with advance tax outgo. Over the past few days, funds to the tune of Rs 40,000-Rs 50,000 crore have been drained out of the banking system. Banks are also not in a position to draw refinance from RBI as the central bank lends against government bonds. Currently, bank investments in bonds are just enough to meet the statutory requirement and there is no surplus available for borrowing through repos. While around Rs 6,500 crore has flown out of the system due to the first phase of the CRR hike coming into force, more than Rs 35,000 crore has been drained off due to advance tax outflows.
Another impact of the rise in rates could be that the upward pressure on the rupee could continue.
For SBI the rate hike was a thought out decision. The bank had waited to see what would happen after the CRR hike came into effect last weekend and only then sought its board’s approval to hike lending rates. The decision was taken following the bank’s board meet in Kochi on Tuesday.
OBC’s revision in rates will come into effect from January 15. “In order to give some notice to our borrowers we decided to raise the rates from mid-January,” said KN Prithviraj, CMD of OBC. The bank has substantially raised deposits rates. “The housing rates that are linked to our PLR is revised by 25 bps,” he added. The bank has raised deposit rates for one year from 7.75% to 7%, while on a five-year deposit it offers 8.25%.
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Last fortnight, ICICI Bank, HDFC Bank, Centurion Bank and YES Bank raised their PLR. The revision in the lending rates comes after the RBI revised the cash reserve ratio - a portion of deposits that banks are required to park with RBI.Start a SIP with as low as ₹500 with ET Money App!
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