United Bank of India has decided not to increase its lending rates, yet. However, the bank is not ruling out a possibility of a hike later on, which will depend on the situation of cash reserve ratio. Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. The bank, however, maintains that there is a rising pressure in the net interest margins.

"It is increasingly becoming difficult to maintain the interest rate structure, considering the immense pressure in the NIM. As of now we can adjust the price as most of the lending rates are below the PLR (Prime Lending Rates), however question remains for how long we would be able to sustain with this," said PK Gupta, Chairman and Managing Director, UBI. Net Interest Margin (NIM) is a measurement of the difference between the interest of the income generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example, deposits).

Gupta also admitted that the bank has experienced a slower credit off take compared to the March, 2008 levels. “There has been a decline in the credit off-take compared to the last quarter," he said. "Logically speaking, there would be a slow down in the credit off- take on the account of the higher interest rates," he added.

According to sources close to the bank, the bank has taken a hit particularly in the corporate advances and home and auto loan segments.

An executive from the bank said, "We are experiencing a poor credit growth since March, and the corporate lending has suffered the most during this period."

However, there has been a hike in the deposit rates. UBI has increased interest rates on domestic term deposits by 25 to 50 basis points. The new deposits rates for the one year period would be 8.5 per cent while for the period between two years to three years it would be 8.75 per cent, compared to 8 per cent earlier.