Two days after the annual credit policy announcement by the Reserve Bank of India (RBI), as many as seven banks have hiked their lending rates. State-run Allahabad bank and Indian Bank are the latest ones to hike base rate and benchmark prime lending rates (BPLR) on Thursday by 50 basis points each to 10% and 14.25% respectively.

More banks are expected to follow suit.

We would hike our base rate and BPLR by 50 basis points very soon. Our cost of funds in savings deposits will go up by 11 basis points, B A Prabhakar, executive director, Bank of India

Leading banks, including IDBI, Punjab National Bank (PNB), Oriental Bank of Commerce (OBC), Bank of Maharashtra (BoM) and Yes Bank, have increased their interest rates by half a percentage.

With such rate hikes, loans become costlier. This might lead to contraction in demand for home and car loans, said analysts.

With the increase, the base rate for PNB, OBC, IDBI and BoM stand at 10% while the private sector lender YES Bank will be at 9.50%. BPLR of PNB stands at 13.50%, OBC at 14.25%, IDBI bank 14.50%, BoM 14.25% and Yes Bank 19%.

We would soon hike our lending rates by 50 bps, said M Narendra, CMD, Indian Overseas Bank.

As a commercial bank, we need to stay competitive in the market. Hence, we have to pass on some higher cost of funding to our customers. RBI’s latest rate hike will lead to increase in cost of funds.

RBI has hiked its key policy rates by 50 bps points: repo 7.25% and reverse repo 6.25%. Moreover, it increased the savings deposit rates by 50 bps to 4%. It will culminate in higher cost of funds for banks.

Meanwhile, Bank of Baroda raised its very short term deposit rates by 25-150 basis points with effect from May 5, 2011. Its 7-45 days deposit schemes now offer 4% rate of interest. IDBI Bank too hiked retail term deposit rates by 25-50 basis points in different maturity buckets on May 3.