Union Bk hikes base rate to 10.25%, ups NRE deposits rate

Union Bank of India today became the second state-run lender after the Reserve Bank's liquidity tightening moves, to increase its lending rate by 25 basis points to 10.25 percent.

Also Read: Not hiking base rates; deposit growth key: Bank of India

The rate hike is effective from today, the city-based lender said in a statement. Andhra Bank became the first public sector lender to hike its minimum rate of lending last month after the hardening of interest rates in the call money markets following the series of liquidity tightening by RBI starting July 15 to arrest the rupee fall.

Union Bank has also revised its NRE (non-resident - external) term deposit rates by up to 0.75 percent in the three to five year maturity. Deposits under Rs 1 crore in the maturity will now fetch an interest of 9.50 percent, up by 0.50 percent, while the same for those from Rs one crore to Rs ten crore have been
increased by 0.75 percent to 9.25 percent, it said in a statement.

Many private sector lenders like ICICI Bank, Axis Bank and HDFC Bank, have increased their lending rates, but state-run banks have been slow on that front apparently due to instructions from Finance Ministry. Delaying the rate hike is expected to squeeze a bank's net interest margin. Union Bank's net interest margin fell to 2.63 percent in the June quarter, among the lowest in the
peers, down from 3.01 percent in the year ago period.