Banks cut lending rates
More banks have reduced their benchmark prime lending rates (BPLRs) after market leaders SBI and HDFC made their loans cheaper, reports Devraj Uchil. FD rates.business Updated: Dec 23, 2008 01:18 IST
More banks on Monday reduced their benchmark prime lending rates (BPLRs) after market leaders State Bank of India (SBI) and Housing Development Finance Corporation (HDFC) made their loans cheaper, marking a beginning of a substantial fall in interest rates in the first half of 2009, to rev up a slowing economy.
Bank of Baroda (BoB) and Bank of India (BoI) reduced their BPLRs by 75 basis points to 12.5 per cent each, effective January 1, 2009.
Bangalore-based Canara Bank too has taken an in-principle decision to cut its BPLR by 75 basis points to 12.5 per cent, but is yet to make a formal announcement. And while Union Bank and Punjab National Bank had already brought down their BPLRs to 12.5 per cent, HDFC Bank has reduced its BPLR by 50 basis points to 16 per cent, effective January 1.
SBI, BoI and BoB have also reduced their one to two year deposit rates to 8.5 per cent. Most public-sector banks have also decided to cap the interest rate they would offer on one-year bulk deposits at 8.5 per cent, thus helping ease pressure on retail deposit rates and thereby on their cost of funds.
Public-sector banks are likely to further reduce their lending and deposit rates in January, a senior official with a Mumbai-based public-sector bank said on the condition of anonymity.
The reductions in lending and deposit rates by the bigger players is being seen as putting pressure on the country’s largest private-sector lender, ICICI Bank, and also on smaller banks to reduce their interest rates.
ICICI Bank’s managing director and CEO-designate, Chanda Kochhar, on Friday said bulk deposit rates had fallen by 200 basis points in the past two weeks, a precursor to fall in retail deposit rates across the system.
This is the second round of BPLR cuts by banks following a series of cuts in policy rates and cash reserve ratio (CRR or the proportion of deposits banks have to set aside as reserves) by the Reserve Bank of India in the last three months.
RBI has cut the rate at which it provides overnight funds to banks by 250 basis points (100 basis points make 1 percentage point) to 6.5 per cent, the rate at which it borrows funds from banks for a day by 100 basis points to 5 per cent, and CRR by 350 basis points to 5.5 per cent.