No Surprises For Corporates, Markets

The SBI scrip gained Rs 7 on the NSE to close at Rs 284.75. A section of the corporate sector was anticipating one per cent cut in the PLR. R K Pitamber, managing director, Mahindra & Mahindra, said: SBI is reducing the prime lending rate mainly because it is flush with funds. For the past one year or so the bank has reduced its lending to a large extent and had cut its sanction facilities also. Now that it has reduced the PLR it clearly means that SBI once again intends to lend in a big way. This strategy of SBI has given it an edge over other banks and others may not be in a position to cut the lending rate immediately since they are not as funds-flush as SBI. The State Bank's decision is obviously a welcome move. Companies like M&M which depends heavily on SBI and other leading consortium of nationalised banks for its working capital requirements will definitely get a boost.

 

V K Balasubramanium, executive director, finance, Mafatlal Industries said: Banks have their own credit rating system and hence this 15.5 per cent prime lending rate will not be applicable across the board for everybody. The rate applies to prime customers and government borrowers, and the move will help corporates with good credit rating. Generally most customers have to pay a per cent higher than the PLR fixed by the bank because of their relatively poor creditworthiness. Besides, banking finance is not adequate, hence most corporates tend to take the bill discounting and ICD route. With more money available with the banks, SBI has taken this step mainly because its credit deposit ratio has not been picking up.

Airing his opinion on SBI's decision, V K Vishwanathan, finance controller, Hindustan Lever said that the move was long overdue. The cut should have been more than just the half per cent. Inspite of steep increase in the petroleum prices, the inflation rate has been maintained at 6 to 6.5 per cent level, hence the PLR should have been reduced further. Though it is difficult to arrive at an ideal formula for calculating the PLR, it should be around 5-6 per cent higher than the inflation level. With the busy season approaching, the credit offtake will pick up and the cut will definately help, he said.

Says G.C. Garg, managing director, Lloyds Finance:The cut was expected as inflation level has been low and poor offtake of credit by the corporates. Other banks are expected to emulate SBI. There are indications that SBI may cut its PLR by another half per cent in the next few months feels Garg.

Jayant Bhuyan, director of CII, said the difference between inflation and PLR is already very high and a 0.5 per cent cut in PLR is the right step taken in reducing this differential. He reiterated that a 1 per cent cut would have given enough breathing space to the cash stricken corporates.

The market has welcomed the PLR cut for State Bank of India (SBI), as it gave a definite signal of easing of liquidity, which would give a boost to trading sentiment at the capital markets. On the other hand, the continuing high rates of interest remains to be a worrying factor, marketmen said.