The Telegraph
Since 1st March, 1999
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PNB sticks to rate hike stand

Mumbai, Aug. 12: Punjab National Bank (PNB) hasnít buckled: the board of directors of the state-owned bank today approved the 25 basis point hike in the benchmark prime lending rate (BPLR) to 11.5 per cent that was announced on August 1.

The bank had also raised the interest on housing loans by 25 to 50 basis points, which has also been maintained.

Last week, the finance ministry had directed state-owned banks to get their board of directors to ratify the rate hikes that had been decided by their asset liability committees.

The directive was seen as an expression of finance minister P. Chidambaramís disapproval of the rate hike that came soon after the Reserve Bank of India (RBI) raised its short-term rates on July 25, the third time this year.

The decision to maintain the hike was taken at a board meeting of the bank held in Bhopal today.

After the finance ministryís directive, the boards of three banks ó Bank of Baroda (BoB), Andhra Bank and Oriental Bank of Commerce ó had met early this week. While BoB and Andhra Bank did not alter their prime lending rates, Oriental Bank of Commerce only brought down the interest rate on housing loans below Rs 20 lakh.

The board of State Bank of India (SBI) will meet on August 24 to take a decision on its move to increase interest rates as well. The countryís largest bank is also expected to endorse its earlier decision of revising its benchmark prime lending rate by 25 basis points to 11 per cent.

While officials of PNB were not available for comment, it is learnt that the bank had taken board approval on July 31 for increasing lending rates, but decided to meet again after it received a note from the finance ministry.

From August 1, PNB had raised home loan rates by half a per cent for all repayment tenures except for tenor of 20 to 25 years where the increase is 25 basis points.

Subsequently, on August 5, the Delhi-based bank raised fixed deposit rates for varying maturities. While interest rates on deposits were increased by 25 to 75 basis points from 180 days onwards, the bank explained that the rise was effected as interest rates in the government securities market had hardened and there was a strong pick-up in credit offtake.

PNB had last raised interest rates on domestic term deposits in July.

Only four public sector banks have so far raised interest rate. Bankers say others are waiting and watching the situation. They are expected to take a call on interest rates over the next few days.

Apart from the four nationalised banks, Housing Development Finance Corporation (HDFC) and LIC Housing Finance have raised interest rates after the RBI increased the reverse repo and the repo rates last month.

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