Home, auto loans to become costlier; FDs to give better returns

In a mixed bag of offerings this festive season, banks today decided to push up interest rates on home and auto loans but also announced that they would provide higher returns on fixed deposits.

Six banks including PNB, IDBI Bank and Allahabad Bank said they will hike their base rates -- below which they can't lend -- by up to 50 basis points from tomorrow that would make home, auto and corporate loans costlier.

On the other hand, three banks -- SBI, PNB and IDBI Bank -- raised their fixed deposit rates, by up to 75 basis points (0.75%).

The country's largest lender SBI, however, retained its base rate at 7.5%, despite RBI increasing short-term policy rates at its review meeting earlier this month.

Domestic private sector lenders Axis Bank and Kotak Mahindra Bank, and foreign lender Standard Chartered Bank, raised base rate by 25 basis points.

As per RBI guideline, banks are supposed to review their base rate every quarter. This is the first review of the rate since it was introduced in July this year to replace Benchmark Lending Rate (BPLR) system to improve transparency. 

Meanwhile, SBI increased its deposit rates, as also PNB and IDBI Bank, up to 75 basis points to attract depositors to their fold, who have been getting negative returns when adjusted for inflation.

Taking note of the negative real rates to the savers, in view of high inflation, PNB raised interest rate on fixed deposit by 25-50 basis points across various maturities, while IDBI Bank hiked its rates by 15-50 basis points on various slabs effective tomorrow.

Banks' decision to increase deposit rates, which would be followed by other lenders, follow the Reserve Bank's concerns
that lenders are not attracting enough depositors.

State Bank of India (SBI), the country's largest bank, has decided to raise deposit rates from 25-75 basis points (0.25-0.75%) across various maturities.

For 91-180 days term deposits, SBI will pay 5.5% interest, up 75 basis points from the existing rate.

Fixed deposits with maturity period between 1 year and 554 days has been raised by 25 basis points to 7%, while deposits for 555 days would attract 7.5%.

The interest rate on term deposits of between 556 days and 1,000 days, under different slabs, has been increased by 50 basis points, going up to 7.75, SBI said in a statement.

PNB, meanwhile, raised its base rate from 8% to 8.50% in response to RBI's hike in the policy (lending and borrowing) rates for banks on September 16, and the subsequent impact on cost of deposits.

The maximum rates offered by PNB, IDBI Bank now is 8%, while for SBI it is 7.75% for fixed deposit of 1,000 days and 8-10 years.

For 1-3 years term deposit, PNB will pay 7.5% interest, an increase of 25 basis points.

As far as IDBI Bank is concerned 15-45 days fixed deposit would invite an interest rate of 3.25%, an increase of 50 basis points.