Bank loans turn dearer with the dawn of 2011

However deposits ring in better returns

While hike in lending rate would make auto, home and commercial loans expensive, increase in deposit rates will ensure better returns for depositors.

SBI announced increase in its base rate or minimum lending rate by 40 basis points to 8 per cent. The fixed deposits with SBI would fetch high interest and it would give highest return of 9 per cent for deposits of 555 days and 1,000 days, up from 8.5 per cent.

The highest increase of one per cent was in fixed deposits with maturity between 7-14 days. The short term FDs would fetch an interest rate of 4 per cent from the existing 3 per cent. SBI also raised benchmark prime lending rate by 25 basis points to 12.75 per cent. This will make EMIs for existing loan dearer by at least 25 basis points. The new rates would be effective from January 3.

Special home loan rates

The bank, however, announced a special lower home loan rates for first few years which are, however, higher than lender’s most popular teaser rates.

Under the new special scheme, home loans of up to Rs 75 lakh attract 8.50 per cent interest rate for the first year and 9.25 per cent for next two years.

The special rates are valid between January 3 and March 31, 2011. The new formula involves a card rate which is higher than bank’s base rate or the minimum lending rate and then places a discount on card rate. The same formula is applicable on auto loans as well.

Earlier, SBI was offering a teaser rate of 8 per cent for the first year and 9 per cent for the next two years. These were not linked to the base rate. Meanwhile, HDFC Bank has decided to increase its Base Rate by 25 basis points to 7.75 per cent effective January 3.

Besides ICICI, private lenders Kotak Mahindra Bank and Dhanlaxmi Bank also increased base rates by up to 75 basis points.

ICICI Bank has announced an increase of 0.5 per cent in the Base Rate with effect from January 3, 2011. The revised rate will be 8.25 per cent as against 7.75 per cent at present, the bank said.

It said that with effect from July 1, 2010, interest rates on new loans and advances are determined with reference to base rate. In order to bring in more transparency, the base rate was introduced as a replacement for the Benchmark Prime Lending Rate (BPLR) from July 1, 2010.

ICICI Bank has also announced an increase of 0.25 per cent in its BPLR and in its Floating Reference Rate (FRR) for consumer loans with effect from January 3, 2011.

The BPLR is used for determining interest rates on loans and advances sanctioned up to June 30, 2010.

ICICI said the fixed rate customers will not be impacted by the above increase and their contracted rates will remain unchanged.

Kotak Mahindra Bank hiked base rate and BPLR by 0.25 per cent each. With the increase base rate would go up to 8.25 per cent.

Dhanlaxmi Bank also announced an increase of 0.75 per cent in its base rate and BPLR.
Base rate will be revised to 8.25 per cent from the current 7.50 per cent while BPLR will be changed to 17.25 per cent effective, January 1, 2011.

Corporation Bank revised its Base Rate for lending to 8.90% p.a from 8.25% pa with effect from January 3, 2011. The bank also revised the Rate of Interest on Term Deposits for different bands effective from January 3.

For maturity band for one year, the rate of interest for deposits has been revised to 8.50 per cent, above 12 months to less than 2 years 8.25 per cent, from 2 years to less than 3 years 8.25 per cent, from 3 years to less than 5 years 8.35 per cent and for 5 years and above it is 8.50 per cent, the bank said.

Other banks which have tightened their base rates this month include Union Bank, Punjab National Bank, Bank of India, IDBI Bank, Indian Bank, Indian Overseas Bank, Allahabad Bank, Dena Bank and Standard Chartered Bank.