Union Bank of India has withdrawn the discretion vested with its regional managers to grant 1 percentage point interest rate discount on loans especially to corporates to improve its yields on advances. | |
| The public sector bank has also withdrawn powers to waive off processing charges for demand drafts and opening letters of credit to increase its fee-based income. |
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| "It is a pricing issue and we want our yields to go up", M V Nair, chairman and managing director, said. Generally such discounts are extended to corporates, which are big-ticket clients to ensure growth when banks have been competing to retain or get new business. |
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| Competition had forced banks including Union Bank to offer interest rates 3-4 per centage points below its prime lending rate (PLR) to blue chip clients. |
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| The share of sub-PLR lending in total corporate advances is 68 per cent. Corporate and commercial lending comprises 34-36 per cent of the total advances portfolio. |
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| The bank's yields on advances have increased from 8.30 per cent at end of June 2005 to 8.46 per cent at the end of June 2006. The improvement in yields was mainly contributed by segments such as retail loans. The decision to cut loan rates made dent in returns especially on corporate portfolio, another Union Bank official said. |
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| Union Bank's net profit in the quarter ended June 30, 2006 fell by 30.60 per cent from a year earlier, as rising interest rates caused a sharp dent in the valuation of its investment portfolio. Its net profit fell to Rs 166.81 crore in the first quarter ended June 30, 2006 from Rs 240.39 crore a year earlier. |
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| The bank raised its PLR by 25 basis points to 11 per cent after the Reserve Bank of India raised the reverse repo rate by 25 basis points to 5.75 per cent in June. |
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| The rates in sub-PLR category also have firmed up. Now the floor rate in this category is eight per cent compared to 6-6.5 per cent a early part of 2005-06, official added. |
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