Banks Likely To Cut Plr, Fis Cautious

Banks are gearing up to initiate a fresh round of prime lending rate (PLR) cuts, following the announcement of a reduction in the bank rate and a sharp cut in the cash reserve ratio in the busy season credit policy.

The SBI board is scheduled to meet today to review the banks PLR. SBI chairman M S Varma said the stance of the credit policy is towards a reduction in PLR.

Bank of Baroda is poised to reduce its PLR by 50 basis points while ANZ Grindlays has announced a 100 basis point cut in its PLR from 15.5 per cent to 14.5 per cent though sources

 

at the bank said it is not considering a differential PLR rate immediately.

Bank of India sources said the bank is considering a reduction in its lending as well as deposit rates. The extent of the cut will be decided by the banks assets-liabilities committee. However, financial institutions may not cut their PLR immediately. I do not expect any immediate impact on the long term lending rates, although there may be some impact on the short term rates, said Industrial Development Bank of India chairman S H Khan.

The boards of HDFC Bank and IndusInd Bank were also said to be considering a PLR cut. However Hongkong Bank sources denied that the bank had any plan to administer a cut in the near future.

AT Pannir Selvam, chairman and managing director of Union Bank and the new chairman of the Indian Banks Association, said the policy thrust was towards a reduction in interest rates, and most banks would cut their PLRs in due course.

Bank of Baroda chairman K Kannan said his bank would stop rounding off the interest tax. This would take the effective cut in PLR to between 70 and 80 basis points, Kannan said. Bank of Baroda will determine the term lending rate after deciding on an anchor rate, he added.

Meanwhile, Dena Bank sources said a board meeting is scheduled this week to take a decision. Chairman Ramesh Misra, however, said the bank is not considering any differential PLR.

ICICI Bank, on the other hand, announced a cut in interest rates on domestic term deposits. According to ICICI bank vice-president P H Ravikumar, The bank has reduced rates on deposits between 46 days and 91 days by 0.5 percentage point from 7 per cent to 6.5 per cent. On deposits between 91 days and one year, the bank has created two bands.

While earlier the bank was offering a rate of 8 per cent on all deposits between 91 days and one year, now the bank is offering 7 per cent interest on deposits between 91 days and 180 days. On deposits between 181 days and one year, the bank has cut rates by 0.5 per cent and is offering a rate of 7.5 per cent.

For deposits between one year and 15 months the bank was earlier offering a rate of 11 per cent. This has now been brought down to 8.5 per cent. For deposits between 15 months to two years, the bank has cut rates from 11 per cent to 9.5 per cent.

There is a 1.5 per cent cut on deposits between two years and three years to 10.5 per cent from 12 per cent. On deposits above three years to five years, the bank has decided to cut rates to 10 per cent from 12 per cent.

Until now, interest rates on domestic term deposits with a maturity of 30 days and up to one year were prescribed at not exceeding Bank Rate minus 2 percentage points per annum, while banks are free to fix the interest rate on domestic term deposits of over one year.

With a view to giving banks full freedom to determine the interest rates on term deposits, effective October 22, 1997, the banks have now been granted freedom to fix their own interest rates on domestic term deposits of 30 days and more.

The RBI has stated that banks need to obtain prior approval from their respective boards for the interest rates they will be offering on deposits of various maturities. The central bank has mentioned that banks may offer a fixed rate on deposits or a floating rate clearly linked to an anchor rate. Banks may offer new rates on fresh deposits and on renewal of maturing deposits.