This rate hike had an adverse impact on BSE Sensex pulling it down by 426 points. Interest sensitive sectors like Bank, Real estate and Automobile were hardest hit. Bankex index of banking sector, auto index and reality index lost 3.11%, 3.74% and 2.91% respectively.
This increase in the policy rates is to tame the inflation rate which is currently running at 8.82%, higher than the RBI forecast of twice revised projection of 8%.
IDBI bank was the first bank to announce the increment in the loan rate by 50 basis points to take minimum lending rate (base rate) to 10%. Other public and private sector banks followed suit and raised their base rates, the benchmark rates for all loans.
Punjab National Bank and YES bank raised their base rate and prime lending rate (PLR) by 50 basis points, where 1 basis point is equivalent to .01 percentage point. For PNB and YES bank the base rate stood at 10% and 9.5% respectively and PLR at 13.5% and 19% respectively. Most banks' base rate is around 9.50% and the PLR is in the range of 13.50-13 .75%.
According to the senior SBI official, 50 basis points rise in the saving rate for the saving account deposits, which constitutes 22% of all deposits, is going to have an additional burden of Rs. 1600 crore for the bank leading to 50 basis point increase in lending rate.
With increase in the key policy rates, LIC housing finance increased their fixed rate of interest for their new customers and linked it to the PLR along with floating rate. The company has offered fixed rate of interest for first five years with one time chance of converting it to floating rate regime. The fixed rate is pegged at 10.50% for loans up to Rs 30 lakhs, 10.75% for loans between Rs 30 lakhs and Rs 75 lakhs and 11% for loan above 75 lakhs.
But banks like Bank of Baroda and Indian Bank have decided to keep the deposit rate intact for time being and increase their base rate and PLR by 50 basis points. While some banks like Oriental bank of Commerce (OBC) has signaled to increase the deposit rate by 25-50 basis points.