Union Bank not to cut lending rates despite fall in cost of funds

State-run Union Bank is not likely to cut lending rates although the cost of funds may start coming down from the third quarter of the current financial year (2009-10).

“We reduced our benchmark prime lending rate (BPLR) even before cost of funds came down. Going ahead, we may not be able to reduce BPLR further even if cost of funds came down,” MV Nair, chairman and managing director of the bank, said today.

The Mumbai-based bank reduced its BPLR by about 275 basis points (bps) since November 2009. As a result, net interest margin of the bank in the April-June quarter dipped to 2.29 per cent as compared with 2.92 per cent in the same period of the previous year while cost of deposits rose to 6.47 per cent from 6.06 per cent.

“Some banks having higher BPLR at around 16 per cent may have the scope to cut rates,” Nair, who is also the chairman of Indian Banks’ Association, said. On Monday, Union Bank announced lower car and home loan rates to attract customers during the festival season.

Nair said the banking system’s credit offtake at 15 per cent on-year till now, was surely below expectations. “In my bank, we have grown by 18.5 per cent till now,” Nair said.

Talking about credit growth not picking up despite the rise in sanctions, he said, “Whenever you are faced with a downturn, industries reduce their inventory and manage it at a lower level. If investment gets postponed, even if sanctions are available, the disbursals on term loan sanctions will also get delayed.”