State lender State Bank of India (SBI) raised its benchmark prime lending rate (BPLR) by 70 basis points to 14.85 percent with effect from Wednesday. The bank has also raised its base rate from 9.40 per cent to 10.10 per cent.
This is the highest BPLR in 27 years. The last time when benchmark prime lending rate was higher than 14.85 was in Sep 1996 when it had hit 15.50 percent.
Commercial banks have been raising their lending rates for the past one year as the Reserve Bank of India started pushing the repo rate upward. Repo rate is the the lending rate at which the banking regulator gives short term loans to banks.
In Feb 2023, RBI hiked the repo rate for sixth consecutive time by 25 basis points, taking the cumulative hike to 250 bps since May 2022.
The bank revises its BPLR and base rate every quarter. The bank has lately been raising BPLR since September 2021 when it was 12.20 percent.
In Dec 2021, the lending rate was raised by 10 basis points to 12.30 percent. Following this, the rate remained same in the next quarter (March 2022) before it was raised by 45 basis points in June 2022.
In the next quarter, the BPLR was raised by 70 basis points in Sep 2022.
In Dec 2022, it was raised by another 70 basis points to 14.15 percent before raising it again to 14.85 percent from today onwards.
It is worth mentioning that the BPLR hovered around 14 percent in 2017 but it did not touch 14.85 percent.
It is also worth noting that the bank has kept the marginal cost of funds-based lending rate (MCLR) same across all tenures.
What is BPLR?
It is vital to note that the benchmark prime lending rate is not a true indicator of the bank’s lending rate. This is, in fact, the rate which banks charge their credit worthy customers.
It was introduced in 2003 by the Reserve Bank of India (RBI) as a rate applied by a bank to its most creditworthy customers. But it lacked transparency since banks could lend below this rate to privileged customers.
Therefore, the RBI in 2010 introduced the Base Rate system, effectively replacing the BPLR system.
Bucking the trend
It is interesting to note that two state lenders recently cut down their lending rates on home loans. A few days ago, Bank of Maharashtra cut down its home loan rates by 20 basis points to 8.40 percent, making it among the lowest in the industry.
Bank of Baroda also cut down its home loan rates by 40 basis points to 8.50 percent. At the same time, HDFC and Punjab National Bank raised their lending rates recently.