Banks' new idea to let customers into base rate
By Joseph Samson
Aug 2, 2010
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Banks have discovered a new way of leading customers to the base rate regime. With RBI refusing to finally do off with benchmark prime lending rates (BPLR), banks have to take their own initiatives to make customers move towards base rate system of lending. They have done so by raising the BPLR.

Two major public sector lenders, Punjab National Bank and Union Bank of India have revised their BPLR rates. While for PNB the raised rates are 11.75% as compared to 11% earlier, Union Bank of India has increased the rates to 12.25% as compared to 11.75%. PNB's revised rates are to come into effect from 1st August and Union Bank's rates from 4th August.

Rising cost of deposits and attempt to prevent affect on margins has been one of the major reasons behind banks taking this move.

"In the current scenario of rising interest rates, our deposit costs are increasing. Hence, we have no choice but to realign the BPLR to protect our margins," said a senior Union Bank of India official.

However, another public sector bank official said that customers should not opt for base rate just based on the fact that it is cheaper than BPLR. They should look into all other factors too.


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