REC to increase lending rates by 50 basis points

In the backdrop of the government adopting a tighter monetary policy, state-run Rural Electrification Corporation today said it planned to increase its lending rates by 50 basis points within two weeks.

''Since the cost of borrowing is going up, we will also think about raising our lending rates in a fortnight,'' REC's director of finance H D Khunteta said after releasing the company's third quarter results.

''We plan to increase the interest rate by 50 basis points after doing consultations with state-run Power Finance Corporation. If we do it, PFC will also increase the lending rates,'' he said.

The corporation's lending rates range from 10.75 per cent to 12.50 per cent for different categories of borrowers.

''Interest rate has gone up by 150 basis points in the past. But our cost of borrowing has not increased because of External Commercial Borrowings. At present, our cost of borrowing is 7.85 per cent which may go up to 8.1 per cent. Thus, we are planning to increase our lending rates by 50 basis points to keep intact our yield on loans,'' Khunteta said.

In the 2010 December quarter, the company's yield-on-loan was 11.24 per cent as against 10.96 per cent in the same period a year ago.