SBI cuts BPLR by 50 basis pts

State Bank of India (SBI), the country’s largest lender, today announced a 50 basis point cut in its benchmark prime lending rate (BPLR) to 11.75 per cent.

The cut would be effective from Monday, the bank said. With this, SBI has lowered its BPLR by 200 basis points since November 2008, when the Reserve Bank of India signalled a soft interest rate regime.

The move comes within a fortnight of Finance Minister Pranab Mukherjee’s advisory to public sector banks to lower their lending rates. Union Bank of India and United Bank of India have also announced rate cuts. United Bank today said it would cut its BPLR by 25 basis points to 12 per cent from July 1.
 

BPLR OF MAJOR LENDERS
Punjab National Bank	11.00
State Bank of India	11.75
United Bank of India	12.00
HDFC *	13.75
ICICI Bank (Benchmark advance rate)	15.75
(Floating reference rate)	12.75
HDFC Bank	16.00
*retail prime lending rate Source: Banks

By staggering the rate cuts till the end of the first quarter, banks would be able to show a healthy net interest margin (NIM) for April-June, said an executive with a private bank.

While SBI had lowered deposit rates four times in the first quarter of the current financial year, it had not cut its BPLR, fearing an impact on NIM. It had last lowered its BPLR in January. However, since then, it has lowered lending rates for home and auto loans and for small and medium enterprises.

The bank is seeing rigidity in cost of funds as it had mopped up retail deposits by offering 10.5 per cent a year for 1,000 days. While it is unable to reset interest rates on these deposits up to October 2011, its earnings from advances will drop immediately after the rate cut. As a result, SBI’s NIM fell by 14 basis points to 2.93 per cent at the end of March 2009, as against 3.07 per cent a year ago. In the fourth quarter, its NIM fell 22 basis points as it raised around Rs 1,000 crore a day through retail deposits in the third quarter and the early part of the fourth quarter.

But SBI executives said the BPLR cut would hit the bank’s NIM by just five-six basis points.