Fis Cut Lending Rate Floor

IDBI said in a statement that the interest band has also been brought down to 3.5 per cent from 4 per cent. "As a result of this revision, interest rate at the top of the band will stand reduced by 1 per centage point."

The interest rate on a particular loan will continue to be fixed depending upon the risk perception within the interest rate band. The lowering of the MLR by the FIs indicates that the long-term interest rates are coming down. IDBI sources said the decision was taken jointly by all the four chairmen. IDBI chairman S H Khan had told Business Standard on Saturday that the FIs will bring down the MLR following the 2-percentage point cut in CRR. Khan had stated "the credit policy is a clear indication that the interest rates have to be brought down. However, our cost of borrowings have to come down so that we can bring down the lending rates."

 

The sources said they will bring down the coupon rate on the forthcoming bond issue. "This is a signal that the coupon will be lower than 16 per cent and we will decide on the issue after consultation with all our five lead managers," sources said. IDBI is expected to float a Rs 2000 crore bond issue next month.

ICICI CEO and managing director KV Kamath had also indicated a rate cut when he told newsmen that lending rates have to come down. All eyes are now on the SBI board meeting today where the bank is expected to announce a rate cut.

Meanwhile, Dena bank yesterday pared its PLR by one percentage point to 15 per cent. The spread between the PLR and the maximum lending rate has also been brought down to 4 per cent from the earlier 5 per cent. The new rates are effective from October 23.

``The reduction in deposit rates, for deposits below one year will also be taking place soon'' said the head of Dena Bank R Misra. HongKong Bank also reduced its PLR to 17 per cent from 18 per cent. It is the first foreign bank to cut its PLR after the credit policy was announced. Bank CEO D Pullen said, "the initiatives in the credit policy will raise short-term liquidity and lead to a reduction in the cost of resources to the banking sector."