Robbing Paul to pay Peter

State Bank of India (SBI), the country’s largest lender, hiked its MCLR (marginal cost of lending rate) by 10 basis points (bps) on Friday (June 1). Earlier, Punjab National Bank (PNB) had revised its MCLR by a similar margin on Thursday (May 31). The private sector banks and financial institutions, including ICICI Bank, HDFC and Kotak Mahindra Bank, followed suit by hiking their lending rates. 

The move to raise the lending rates by at least 10 bps by the public and private sector banks comes ahead of the Reserve Bank of India’s policy review meet on June 6. Although the hike is not very substantial, existing and prospective borrowers of home loans, personal loans, vehicle loans, etc. will have to pay up more in the form of increased interest outgo.

The banks may have felt the need to hike lending rates in view of their rising levels of non-performing assets (NPAs), increasing cost of funds due to the rise in bond yields and the declining margins. In other words, borrowers have to pay for the inefficiencies of the banking system.

Interestingly, SBI and PNB, the two worst-hit banks from the frauds that shook the banking system in the recent past, were the first to hike their lending rates. Presumably, they wish to make up for their huge losses from the pockets of the honest borrowers, while the fraudsters and scamsters looted these banks and scooted away with the booty and are still roaming scot-free across the world. It’s like, to use the phrase differently, robbing Paul to pay Peter!