Friday, August 4 2006 17:05 Hrs (IST) - World Time -

New Delhi: State-run banks that increased interest rates without their respective Boards' nod last week are expected to obtain approval now, but none of them are likely to rollback the hike, bankers felt.

"The PSU banks who have raised interest rates without board approval, are likely to seek board nod shortly. But, given the increase in cost of funds, no rollback is expected," said a senior PSU banker, who declined to be identified.

Meanwhile, Punjab National Bank, one of the few state-run banks that raised prime lending rate last week, today said it had hiked rates only after obtaining permission of its Board, making it compliant with the Finance Ministry's directions in this regard.

"We had taken the Board's approval for the hike in interest rates," a senior PNB official said, reacting to a letter sent by the Finance Ministry yesterday asking PSU banks to take the advise of its Boards on raising interest rates.

Besides PNB, top state-controlled lenders like State Bank of India and Bank of Baroda have raised prime lending rate (PLR) by 0.25-0.5 per cent. PNB and Oriental Bank have also raised home loan rates by 0.25-1.0 per cent.

If PLR goes up, corporate loan rates and personal loan rates go up as they are linked to PLR. But, housing and car loan rates are priced independently at competitive rates to attract more customers as this segment is growing rapidly.

Under the existing arrangements, the asset and liability committee of a bank assesses the pricing of deposit and advances and decides on the interest rates to ensure sufficient net interest margin (NIM) for the bank.

With cost of funds rising significantly after Reserve Bank raised short term rates by 0.5 per cent, many banks raised home and prime lending rates.