New Delhi, Nov 04: Loans for cars, homes and other
commercial items are set to get cheaper with several banks
lowering the benchmark lending rate by 50 basis points and the
country's largest lender, State Bank of India (SBI), promising
to review it later in the week.
"Interest rate cut is on our agenda," SBI Chairman O P
Bhatt told reporters today ahead of a meeting of public sector
bank chiefs with Finance Minister P Chidambaram here.
Among the banks that have announced reduction in
benchmark prime lending rates (PLR) by 50 basis points
include the country's third largest lender, Punjab National
Bank, and other banks like Uco Bank, IDBI Bank and Union Bank
of India.
Reduction in the PLR is significant as interest rates on
all loans given by a bank, fixed or floating, are linked to
benchmark rates. Interest rates on all individual loans like
car, home or personal loans, move up and down along with
increase or decrease in PLR.
The latest among the PSU lenders to announce rate cut was
Kolkata-based Uco Bank, which has recently undergone capital
restructuring. The government had decided to convert its Rs
250 crore equity capital into debt to make the bank more
attractive for investors.
"We have decided to cut the PLR by half a per cent," Uco
Bank Chairman and Managing Director S K Goel told reporters
here, pointing out that the Assets and Liability Committee
of the bank would meet on November 10 to review the interest
rate scenario.
The largest private sector lender, ICICI Bank, too has
said it would review the lending rates after watching the
impact of the liquidity injection steps taken by the Reserve
Bank last week.
Bank of India Chairman TS Narayanasami indicated that
his bank will soon take a call on revising interest rates.
"All banks are expected to cut interest rates. We have
to fall in line ... We will also review interest rates soon
and it's a matter of time," he added.
ICICI Bank CEO and Managing Director KV Kamath said
yesterday, "We will review the interest rate after watching
the impact of the RBI decision on liquidity."
The lending rate cuts being announced and contemplated by
banks follow the series of steps taken by the RBI to deal with
the liquidity crunch in the past one month.
Among other things the RBI, since October, reduced the
cash reserve ratio (percentage of deposits that banks keep
with the central bank) from 9 per cent to 5.5 percent and the
short-term lending (repo) rate, at which banks borrow from the
RBI, from 9 per cent to 7.5 percent.
The RBI also lowered the statutory liquidity ratio
(SLR), the percentage of funds that banks have to mandatorily
park in government securities, to 24 percent from 25 percent.
Prompted by the easing of liquidity in the system, Punjab
National Bank last week reduced the benchmark PLR by 50 basis
points to 13.5 percent. Several other PSU banks followed suit
by announcing reduction in lending rates.
SBI's decision on interest rates, which is likely
sometime later in the week, will have an impact on the overall
interest rate regime as several smaller banks follow the
market leader.
Banks indicate rate cuts
Several banks are expected to cut
their lending rates beginning tomorrow following Union Finance
Minister P Chidambaram's call for such a reduction in order to
stimulate economic growth.
Apart from SBI, Bank of Baroda (BoB) and Bank of India (BoI) are also
expected to decide on their rates this week.
A top BoB official said the bank was actively looking
at a rate revision but would take a call only after due
deliberation.
A few banks have already cut their lending rates.
These include Punjab National Bank, IDBI Bank and Union Bank
of India. Kolkata-based Uco Bank has announced its decision to
cut its prime lending rate by 50 basis points by next week.
With inflation declining and the Reserve Bank cutting
its repo rate by 150 basis points in the last one month, the
focus has shifted from inflation control to growth stimulus.
Growth has shown signs of slipping and hence the
Finance Minister's call to banks to enhance the credit flow
in the system.
While bankers are tight-lipped about the extent of
cuts, banking industry observers expect them in the range of
50-75 basis points.
HDFC's Chairman Deepak Parekh said the lender would wait
and watch for some time prior to taking a call on a possible
lending rate cut.
"We need to wait and watch (for) some time (before
taking a call on interest rates). The deposit rates have to
come down first before cutting lending rates," Parekh told
reporters here on the sidelines of a function.
Bureau Report