Interest rate hikes not to affect existing loans: FM

He said that after the announcement of monetary policy by the Reserve Bank on July 29, most public sector banks had increased their BPLR by 75 to 100 basis points. They, however, agreed not to raise interest rates on existing home loans.

State Bank of India chairman and managing director CMD O P Bhatt told reporters that while raising its PLR, the bank had already made it clear that the rise in interest rate would not affect existing home loan borrowers who had taken loans on floating interest rate. Apart from this, the hike will not affect new home loans up to Rs 30-lakh limit, existing auto loans and educational loans.

However, Punjab National Bank CMD K C Chakrabarty said the bank had already raised interest rates on existing housing and other loans. 8220;The Board may, however, consider offering concessions on existing housing loans considering the steps taken by other banks.8221;

On Monday, SBI increased its BPLR by 1 per cent to 14 per cent, thus raising interest rate on vehicle loans to 12 per cent as against 10.5 per cent earlier. SBI also raised floating rates for 5-10 year home loans above Rs 20 lakh, to 11.25 per cent from 10.25 per cent.

Chidambaram said performance of public sector banks was by and large on expected lines. 8220;Deposits are still growing at a satisfactory rate compared to Q1 last year. Likewise, advances in Q1 compared to last year were also higher. I have asked chairpersons whether there is any indication of a slowdown,8221; he said.

Referring to credit growth, banks said that in the sanctioned loans and applications for new loans, the overwhelming view was that there was no slowdown in demand for credit. Admitting to some slowdown in consumption credit for personal loans, the minister said banks have imposed some restrains on themselves in the real estate sector, but demand for housing loans continued to be very high.

8220;There is no evidence of slowdown as far as infrastructure, project expansion and new projects are concerned. This gives me confidence that credit growth will still be very brisk and productive sectors will not be starve of credit,8221; he said, adding that bank advances were expected to grow by over 20 per cent.

Chidambaram also said profitability of banks have declined to some extent in the first quarter because of fall in returns from treasury operations. He, however, expressed hope that some of the losses would be recovered if market sentiments improve.

The minister said both gross and net NPAs of banks have declined in the first quarter compared to what they had as on March 31, 2008.