Private banks start lowering lending rates

Axis Bank, the country’s third-largest private sector lender, and Bank of Rajasthan, an old-generation lender, today announced reductions in lending rates.

Axis Bank reduced its prime lending rate (PLR) by 0.5 per cent to 15.25 per cent, while Bank of Rajasthan slashed it by 0.25 per cent to 9.75 per cent.

The private sector banks’ lowering of their benchmark rates came close on the heels of another private sector lender, HDFC, responding to the repeated monetary measures introduced by the Reserve Bank of India (RBI) this year.
 

SOME MOVEMENT, FINALLY Private sector lenders which have cut lending rates
Bank	Reduction	BPLR
Axis Bank	50	15.25
Bank of Rajasthan	25	9.75*
HDFC	50	14.00*
Reduction in basis points, benchmark prime lending rate (BPLR) in per cent * Retail prime lending rate
How they compare with the others
Bank	BPLR (%)	Last revision
PNB	12.00	Feb 1, 2009
SBI	12.25	Jan 1, 2009
HDFC Bank	16.00	Jan 1, 2009
ICICI Bank
Benchmark advance rate	16.75	Dec 31, 2008
Floating reference rate	13.75	Dec 31, 2008
Source: Banks

For Axis Bank and Bank of Rajasthan, the new rates would be effective from April 1.

Axis Bank President (Credit) Partha Mukherjee said the cost of funds for the lender had come down over the past few months. “Interest rates in the system have come down and so have our cost of funds. So, we have decided to pass on the benefits to our customers,” he said.

Since October last year, the central bank has cut the cash reserve ratio, or the proportion of deposits that banks set aside, and the repo rate, or the rate at which it lends to banks, by 400 basis points each to inject liquidity into the system and signal a lower interest rate regime.

In addition, the reverse repo rate has been lowered by 200 basis points to discourage banks to park surplus funds with RBI. So far in 2009, the CRR has been lowered by 50 basis points, while the repo and reverse repo rates have pared by 150 basis points each. Public sector banks have responded by pruning their lending rates by 150-200 basis points but the private sector lenders had not cut rates.

In the recent weeks, the government and RBI have prodded private and foreign banks to lower rates. While some private banks have shown movement, the foreign banks, barring Citibank (which pared home loan rates by 50 basis points to 13.75 per cent), are yet to take the initiative.