PNB lowers rates again, others may follow suit

Public sector lender Punjab National Bank on Wednesday announced a 100 basis point reduction in the benchmark prime lending rate, the second in four weeks. This may prompt banks, especially those which have left rates unchanged, to go for rate cut.

Effective Monday, PNB’s benchmark prime lending rate (BPLR) will drop to 12.50 per cent, the bank said in a stock exchange filing. The revised BPLR will be applicable to all existing and new accounts linked with BPLR where rates are charged at BPLR and above, it added.

On October 31, PNB had cut 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.

When contacted, an HDFC Bank executive said the bank will review rates at the asset-liability committee meet next week. Axis Bank sources said the 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.

United Bank of India Chairman & Managing Director S C Gupta said that it will consider a 50 basis point reduction 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 said private banks, which have so far not lowered lending rates, are expected to do so in the coming days. Banks like Union Bank of India, which have already reduced their lending rates, however, said that they will not immediately review lending rates since deposit rates 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.

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

While there is an expectation of further actions by RBI in the coming days to boost growth, central bank governor D Subbarao is scheduled to meet the heads of large banks on Friday to assess the liquidity situation and take stock of credit flow.