SBI set to hike base rate, price loans higher

18 Apr 2011

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State Bank of India (SBI), the country's largest lender, is expected to increase its base rate for all loans after the Reserve Bank of India (RBI) declined its appeal for waiver of the additional provisioning requirements for its low-interest special home loans.

SBI has set its base rate at a uniform 8.25 per cent for all loans - the lowest among major banks in the country. Most other state-owned banks have a base lending rate of 9.5 per cent.

The RBI stance puts an additional Rs400-crore provisioning burden on SBI, which the bank is now seeking to avoid.

SBI's special home loans carry a low interest rate in the initial three years and a higher rate thereafter. According to the RBI, such loans, which tend to attract homebuyers, increase the burden of repayment on the borrower in the later years, and increase the risk of default.

Reports said SBI is likely to increase its base rate after the RBI's annual policy review due on 3 May.

ICICI Bank, the country's largest private sector lender, has a base rate of 8.75 per cent and SBI is most likely to keep base rate on a par with ICICI's rate.

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