SBI gears up to hike PLR

Bank awaits RBI move to finalise the extent of increase.

State Bank of India, the country's largest lender, is likley to raise its prime lending rate (PLR) and is awaiting fresh monetary actions from the Reserve Bank of India (RBI) to finalise the extent of the increase.

SBI had decided to hold on its prime lending rate of 12.25 per cent when the central bank raised the repo rate, or the rate at which it lends to banks, by 25 basis points to 8 per cent. In its assessment, the bank could absorb the increase as the impact on its net interest margin was less than two basis points. SBI's net interest margin was 3.04 per cent at the end of March this year.

The bank's asset-liability committee (Alco), which met on Saturday, is divided on the issue. But a senior executive said the bank will be unable to absorb further increase in policy rates and will be forced to alter its prime lending rate.

The magnitude of the hike will be decided after RBI announces fresh measures to tame inflation which touched a 13-year high of 11.05 per cent at the end of the first week of June.

While SBI Chairman OP Bhatt had earlier said that the bank will have to review its PLR or alternatively look at raising interest rates on some of the loans it offered, the Alco had decided against the move. A part of the reason, executives said, was due to the anticipation of more steps from the central bank.

"We had anticipated that RBI will step in again since inflation continues to be a concern due to rising crude prices. But we can't do anything now till RBI announces its actions," a senior executive said.

A decision from SBI will set the tone for others. While the largest bank in the country is in a unique position, having raised its deposit rates earlier this month, other players have refrained from raising lending rates so far.

While none of the public sector players have raised rates so far, HDFC Bank, Jammu & Kashmir Bank and Yes Bank have increased PLR by 25-100 basis points.

A host of banks have increased their deposit rates but lending rates are expected to be hiked only after RBI announces fresh steps. On Sunday, Punjab National Bank had indicated that it will increase PLR by 50 basis points.

Others like mortgage player HDFC have said that they will decide towards the end of the month.