UCO Bank to cut PLR by 25 bps

Will seek board nod on Feb 5; Corp Bank may follow suit.

Kolkata-based UCO Bank has decided to lower its benchmark prime lending rate (PLR), thereby becoming the first bank to do so in three years.

The bank will seek approval from its board on February 5 to cut the PLR by 25 basis points to 13.25 per cent. Another mid-sized public sector bank, Corporation Bank, is currently reviewing its lending rates and is likely to take a call in the next few days.

S K Goel, chairman and managing director, UCO Bank, said, "We are going to reduce our PLR by 25 basis points. The board will meet on February 5 to consider this. There has been a slight softening of rates."

UCO Bank has also decided to slash its deposit rates across various maturities by 25 basis points.

The bank expects the interest rate cut to boost the slump in credit offtake. The bank's loan book has grown only 12 per cent since March 31, 2007.

Corporation Bank's current PLR is 13.25 per cent. The bank's loan book grew by 19.42 per cent at the end of December 2007 from a year earlier.

In its third quarter review of monetary policy statement, the Reserve Bank of India (RBI) had placed the onus of reducing interest rates on banks.

The RBI had observed that contrary to the comfortable liquidity situation, banks had not cut lending and deposit rates, which were at the elevated levels of the previous year.

M V Nair, CMD, Union Bank of India, said, "We will look at our interest rates in our next asset-liability committee review."

The growth in credit offtake, led by a slowdown in retail lending, has come down to 22.4 per cent year-on-year for the fortnight ended January 18, 2008 from a compounded growth of close to 30 per cent in the preceding three years.

Finance Minister P Chidambaram had last month advised public sector banks to lower both deposit and lending interest rates by 50 basis points and step up consumer lending.

T S Narayanasami, CMD, Bank of India, said, "There is no question of reducing lending rates at this point. We cannot afford it. As it is, net interest margins are under pressure and the pricing of resources would only rise at the end of the quarter."

PLRs of the top five public sector lenders are between 12.75 per cent and 13.25 per cent.

State Bank of India (SBI), while not lowering its benchmark lending rate, has been offering retail loans to new borrowers at 50-200 basis points discount since October.

SBI, which was initially to offer discounted rates from October 8 to December 31, has already extended its limited period offer till February 16.