SBI surprises with rate hike

Mumbai: Home and auto loans have become costlier with State Bank of India (SBI) hiking its benchmark rates and revising the pricing in retail loans. The bank has also raised its deposit rates to increase the pace of fund mobilisation. 

    A Rs 30-lakh home loan from SBI will now cost 10.1%, while loans for a higher amount will attract 10.3%. Earlier, the rates were 9.95% and 10.1%, respectively. Existing borrowers will, however, see their rates rise by only 10 basis points. This is perhaps the first time that existing borrowers will pay a lower rate than new borrowers following a revision in the spread. The spread refers to the mark-up over the benchmark base rate, which has been revised from 9.7% to 9.8%. 
    Similarly in auto loans the bank has hiked the spreads. Existing borrowers will see their interest rate going up from 10.45% to 10.55%. But new borrowers will pay 10.75%. On Tuesday, SBI chairman Pratip Chaudhuri had said in an interview to TOI that the bank was being forced to increase its 
rates given the sluggish growth in deposits. A bank official said that in the past 45 days the bank has been experiencing an increase in cost of funds. Based on the higher cost of funds, the bank has decided to hike its lending rate. 
    SBI's move has surprised other lenders as the move comes a day ahead of the Reserve Bank of India's mid-term policy review. Bankers have made a representation to RBI seeking a one percentage cut in cash reserve ratio to provide some relief on liquidity. An SBI official said the decision to increase rates was taken by the bank's asset liability committee, which meets on Thursday. Before SBI, HDFC, HDFC Bank ICICI Bank, and Axis Bank had increased their lending rate. But SBI is the first major public sector bank to hike rates. The future course of interest rates will depend on the measures announced by RBI governor Raghuram Rajan in his policy review on Friday. Even after the increase in rates, SBI's home loans continue to be the cheapest among all lenders. Govt gets breathing space Fed Move Gives Time To Policymakers On Forex, Growth
New Delhi: The US Fed's decision to retain the fiscal stimulus is a huge relief for Indian policymakers who are trying to restore order in the foreign exchange market and revive faltering growth. 
    The gloom that had engulfed Asia's third-largest economy seems to be lifting for now due to a combination of factors like soft global crude prices and some domestic demand drivers showing signs of a revival. Stability in the foreign exchange market after weeks of upheaval is also expected to have a sobering effect and help in reviving confidence. 
    The expected push to rural demand from a good monsoon, step up in spending in the run up to the 2014 general elections, some improvement in business confidence in the second half of the fiscal year and a possible easing of interest rates in the months ahead are promising for growth. Economists have cautioned that the challenges are still huge for the economy. 
    "The euphoria over the US Fed tapering being deferred will probably last only a quarter because after that the fear will again come back. Certainly it will lead to some near term improvement, but beyond that we still have several challenges," said Samiran Chakraborty, regional economist at Standard Chartered. 
    The challenges would require decisive action to lift the economy from the severe downturn. Containing price pressures and reviving investment remain the most critical challenges in the short term. The relative calm in the global financial markets and advanced economies may also help India find some breathing space to repair its economy. Exports have showed signs of a recovery and if the pace is sustained it should have a positive impact. 
    The farm sector is expected to post robust growth on the back of healthy monsoon rains."I expect interest rates to come down in the second half of the year as inflation eases. As crude prices stabilize, they should have a positive impact," said D K Srivastava, economic adviser at Ernst & Young.

BACK ON TRACK?