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PNB rules out further cut in interest rates

The state-owned Punjab National Bank (PNB) feels it would be difficult to lower lending rates any further if the government did not slash interest rates on existing deposits.

india Updated: Mar 27, 2009 15:57 IST

The state-owned Punjab National Bank (PNB) feels it would be difficult to lower lending rates any further if the government did not slash interest rates on existing deposits.

"The Reserve Bank of India (RBI) is not reducing interest on savings bank deposits. Only when deposit rates are reduced and new deposits come in at a lower rate will banks be able to reduce lending rates and pass on the benefits to consumers," PNB chairman and managing director KC Chakrabarty told reporters here on Friday, on the sidelines of the annual conference of industry lobby Confederation of Indian Industry (CII).

Referring to the slowdown and the liquidity crunch, Chakrabarty said: "There is a slowdown in new deposits. The liquidity is there but at what cost that liquidity is acquired has a bearing on interest rates. If you don't give me deposits, how will I lend?"

Chakrabarty asked other banks to reduce lending rates, adding: "My prime lending rate is already 75 basis points lower than the largest bank in the country and 300 basis points lower than the second largest bank. Tell them to reduce rates."

Quizzed on why the steadily dropping inflation rate did not prompt more reduction in lending rates, he said: "Inflation has come down but that doesn't have so much of a bearing on interest rates. Deposits rates need to come down."

PNB's prime lending rate, the interest rate charged by banks on short term loans to customers, stands at 11.5 per cent.