State Bank of India raised Benchmark Prime Lending Rate Steeper than Rivals 75 Basis Points

Banks across the country raised their lending rates following RBI’s raising of repo or lending rate by 50 basis points to 7.25% on 3 May 2011. The country’s largest bank, State Bank of India, on 10 May 2011 raised benchmark prime lending rate steeper than rivals 75 basis points to 14%.
The move might erode the bank’s profitability, which is already under pressure due to rising interest rates in the last few months as it will pay more for funds.

The bank raised its benchmark prime lending rate 75 basis points to 14%, and the base rate below which it will not lend to anyone by the same amount to 9.25%. Deposit rates on shorter tenors were raised as much as 225 basis points. A basis point is 0.01 percentage point. A 14-day deposit at SBI will return 6.25%, against 4% earlier, while one-year returns remain at 8.25%. New rates are effective 12 May 2011 onwards.

The demand for homes, cars and consumer durables is expected to fall following the hike of rates by the bank.

The RBI’s objective of raising rates for the past one year to keep prices under check is expected to yield results with banks passing on the higher costs to customers.