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Oriental Bank joins rate-hike party

Mumbai/ New Delhi, Dec. 23: Oriental Bank of Commerce (OBC) today raised its benchmark prime lending rate (PLR) by 25 basis points to 11.75 per cent, following in the footsteps of some private sector counterparts, including HDFC Bank and ICICI Bank.

This is the first nationalised bank to hike lending rates nearly a fortnight after the Reserve Bank of India (RBI) increased the cash reserve ratio (CRR) by 50 basis points on December 8 to check inflation.

The bank has also raised rates on deposits by 25 to 100 basis points across all maturities, which will be effective from December 26. The increase in PLR will be effective from January 15.

OBC officials said the rate revision was in line with the prevailing trends.

With OBC raising interest rates, the stage is set for other nationalised banks to follow suit. It is expected that many of them are likely to change their interest rates from the new calendar year.

Sources said floating rate home loans of OBC are set to get dearer following its move today. This is because retail loan rates are linked to a bank’s PLR, which is the benchmark for all loans. Banks tweak the spread to increase or decrease the interest rates on new loans. But if a bank alters its PLR, the rates for existing floating rate home loans will also change.

Analysts feel new car and personal loans are also likely to become costlier. However, officials said the increase in PLR would not lead to repricing of loans across the board.

The RBI had, in a surprise move, raised the CRR by 50 basis points to 5.50 per cent on December 8. CRR is that portion of bank’s deposits which has to be maintained with the central bank. The half a per cent hike will come in two equal stages of 25 basis points each and it will result in close to Rs 13,500 crore being drained out of the banking system.

The first increase came into effect today and a similar rise will come into effect on January 6. The CRR has been unchanged for 26 months and the RBI had last raised it by half a per cent in September 2004.

“Interest rates, both lending and savings, are headed upwards. Most banks would look at the evolving market trend in the coming week and decide on the course of action,” said Prakash P. Mallya, chairman and managing director, Vijaya Bank.

Following the RBI move, private sector banks, including ICICI Bank, Centurion Bank of Punjab and HDFC Bank, have increased lending and deposit rates citing rising cost of funds and tight liquidity conditions.

Even as these banks made loans more expensive, chiefs of various public sector banks had ruled out an immediate change in their interest rate structure, stating that only sub-PLR loans will be affected.

SBI raised deposit rates by 25-75 basis points also on December 8. Though the country’s largest bank has so far not touched its lending rates, it is believed it could announce a hike over the next few days. Punjab National Bank has also raised deposits rates by 25-75 basis points, but it has not altered its PLR.

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