Day after RBI's nudge, two banks cut rates

A day after the Reserve Bank of India prodded banks to cut interest rates, two public sector banks have responded. While Union Bank reduced home and car loan rates, Punjab National Bank cut car loan rate.

Union Bank’s home loans will now be cheaper by 25-100 basis points, depending on the tenure and the quantum of loan. The bank cut its car loan rate by 125 to 150 basis points. The new rate will be 11 per cent, as against 12.25 per cent for loans of up to three years. The revised rate for the three–year category will be 11.25 per cent, as against 12.75 per cent.

“We have tied up with many automobile companies and a lot of demand is expected to come from that in the busy season”, Union Bank’s General Manager (retail) KR Vijayendra said.  

PNB said it had reduced its car loan rate 50 basis points to 10.5-11 per cent from the existing 11-11.5 per cent, effective tomorrow. The bank’s Rs 850-crore outstanding auto loan portfolio was expected to increase substantially, said a senior PNB official.

The country’s largest lender, State Bank of India, was the first to slash interest rates. The bank decided to freeze interest rates for one year at 10 per cent on new car loans availed of on or before May 31. Observers said the moves showed the aggression of public sector banks at a time when foreign and private sector banks had gone slow in this segment.

RBI Governor D Subbarao met select bankers yesterday and indicated to them that there was room for fresh rate cuts. The central bank is particularly keen that private sector lenders, which had so far reduced rates by only 50 basis points, should also cut rates. In comparison, PSU banks have reduced rates by up to 200 basis points.

Taking the benefit of falling interest rates, automobile companies, which have been hit by the demand slump, are also forging alliance with public sector banks to arrange finance to push sales.