SBI hikes prime lending rate by 50 basis points to 12.75 per cent

Mumbai: The State Bank of India, the country's largest lender, has increased its Prime Lending Rate (the base lending rate) by 50 basis points to 12.75 per cent, effective tomorrow.

The decision to hike PLR will make all loans linked to PLR, including home loans, costly.

The decision, taken by the bank's Asset Liability Committee (ALCO), makes SBI the first public sector bank to raise lending rate after the Reserve Bank's June 24 announcement of a 50 basis points hike in its repo rate and banks' cash reserve requirement.

SBI had reduced its BPLR in January when the liquidity conditions were comfortable then, noted SBI's chief financial officer Ashok Mukand. "We are now restoring our PLR which we had reduced some time back. All loans linked to the BPLR will come under the revision," he added.

The bank has decided not to revise its deposit rates as it had hiked them only very recently, he said.

The RBI raised the repo rate by 50 basis points to 8.5 per cent and the cash reserve ratio (CRR) by a similar percentage point to 8.75 per cent.

The RBI move raises the cost of funds for banks on two counts. A hike in the CRR will limit the cash availability with banks while an increase in repo rate will raise their short-term borrowing costs.

The cash reserve ratio, ie, the amount  banks have to keep with RBI in cash out of their deposit, do not earn any interest.

Private sector lenders such as HDFC Bank, Jammu & Kashmir Bank and Yes Bank have hiked their respective PLRs in the range of 0.25 per cent to one per cent to protect margins.