Chidambaram asks PSU banks to seek board nod for rate hike

05 August 2006

Mumbai: Following a spate of interest rate hikes, announced by leading public sector banks and housing finance companies, the government has now asked these banks to seek approval from their board of directors before effecting any hike in interest rates.

Customers will soon feel the heat as they will have to pay more on their loans starting Tuesday with the country's largest bank, the State Bank of India, and the biggest home loan provider, Housing Development Finance Corporation, raising their lending rates by 25 and 50 basis points, respectively.

While Punjab National Bank and Bank of Baroda, have hiked their prime lending rates by 50 and 25 bps, respectively, HDFC is set to raise its home loan rate by 50 bps to 9.50 per cent. With the latest hike, HDFC will have raised its lending rate by 150 basis points in 2006.

A 50-basis-point increase in the interest rate leads to an increase in the repayment term by about one year.

Although the Reserve Bank of India has kept its key bank rate stable since the 25 basis point hike in January this year, public sector banks had raised their lending rate twice - first by 50 basis points on May 1 and by another 25-50 bps now.

The average Prime Lending Rate (PLR) of leading public sector currently stands at around 11.5 per cent.