PNB for second time reduces rate, others may follow suit

Punjab National Bank (PNB) a public sector lender on Wednesday reduced its benchmark prime lending rates by 100 basis point. This is the second reduction done in four weeks. It is believed this might encourage those banks to cut rates that have left rates unchanged.

The bank informed in a stock exchange filing that by the coming Monday, PNB’s benchmark prime lending rate (BPLR) will come down to 12.50 per cent. It further added the revised BPLR will be applicable for all existing and new accounts linked with BPLR where rates are being charged at BPLR and above.

Earlier on October 31, PNB had reduced BPLR by 50 basis points. “Since interest rates have moved southward, we have decided to cut rates. Quality of assets is crucial and we want to send a message to good borrowers,” the bank’s chairman and managing director K C Chakrabarty said.

An HDFC Bank executive when contacted said the bank will be reviewing rates next week at the asset-liability committee meet. According to Axis Bank sources bank is looking at the cost of funds. “It appears that the lending and deposit rates may follow a downward trend. We expect a decision soon,” the executive added.

While the United Bank of India Chairman & Managing Director S C Gupta said that it will be thinking a cut of 50 basis point in deposit rates on Monday. “We have to take a call on lending rates. If other banks lower their rates, we will follow suit,” he added.

Indian Banks Association Chairman T S Narayanasami stated private banks, which have so far not reduced their lending rates, are believed to do so in the coming days. But the Banks like Union Bank of India, which have already reduced their lending rates, said that they have no plans to review lending rates immediately as deposit rates are continued to be high.

“During the same time last year, deposit rates were 150 basis points lower than the current rate. Unless deposit rates fall, there is little chance of a review in PLR,” said Union Bank Executive Director T Y Prabhu.

However PNB also said that it is planning to reduce peak deposit rate from 10.50 per cent a year to 9.50 per cent for deposits with tenure of one-three years. As a result, interest rates in the time period with maturities of 180 days and above have also been reduced by 25 to 100 basis points with effect from December 1.

Moreover there is an expectation of further measures by RBI in the coming days to increase growth, central bank governor D Subbarao is planned to meet the heads of large banks on Friday to evaluate the liquidity situation and take stock of credit flow.