Following in the footsteps of country’s largest lender, State Bank of India (SBI), four more public sector banks have taken a call on their lending and deposit rates. These steps have been in response to RBI’s hike in the repo rate and CRR last week. Repo rate is the cost of borrowing by the banks from the RBI. 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. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.

Just like SBI and PNB, Kolkata based, Allahabad Bank has decided to hike its prime lending rate by 0.50% percent. Effective from Tuesday, the bank would follow the new benchmark prime lending rate of 13.50 per cent.

In order to maintain its net interest margin (NIM), the bank has also raised its term deposit rates by 50 basis points for various maturities. 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). The bank has said in a statement that the maximum interest rate on term deposit will be 9.5 per cent for a period of one to three years. However, it would be different for senior citizens. "For senior citizens, the rate of interest for the same period would be 10 per cent," a bank official added.

Bank of India and Dena Bank also hiked their benchmark prime lending rates (BPLRs) by 50 basis points to 13.25 percent.

Bangalore-based Vijaya Bank announced a 0.25 per cent point hike in its prime lending rate to 13.25 per cent. In addition to this, the bank announced a hike in deposit rates by upto 0.50 percent, to come into effect from Tuesday.