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Bank loans set to become cheaper

Following a meeting with Finance Minister P Chidambaram, public sector banks hint they would cut the benchmark prime lending rate by 50-75 basis points. HT reports.

business Updated: Nov 05, 2008 02:17 IST
HT Correspondent
HT Correspondent
Hindustan Times

Home, auto and personal loans are set to become cheaper.

Following a meeting with Finance Minister P Chidambaram on Tuesday, public sector banks, including State Bank of India (SBI) and Bank of Baroda, hinted they would cut the benchmark prime lending rate by 50-75 basis points (100 basis points make 1 percentage point).

<b1>After a four-hour meeting with the bank CEOs, Chidambaram said that while the liquidity situation is being reviewed continuously, the banks must “deliver credit at an appropriate price”.

He said the banks were directed to make credit available to all sectors, especially small and medium enterprises and housing.

If the banks pass on the indicated 75 basis point cut in interest rate to home loan consumers, households carrying loans of Rs 20 lakh to Rs 1 crore could save Rs 12,576 to Rs 62,928 a year.

To ensure banks are well funded to give home loans, Chidambaram said the Reserve Bank of India is looking at a proposal of extending a line of credit of Rs 10,000 crore to the National Housing Bank (NHB), which provides re-financing to banks and housing finance companies for home loans.

Meanwhile, the asset and liability committees (ALCO or a committee of a bank to guide interest rates) of PSBs are expected to meet during the course of the week to take a call on reducing PLR.

“Our ALCO should be meeting on Wednesday and a decision to cut prime lending rate (PLR or the rate at which blue chip companies are lent money) would be taken after that," said OP Bhatt, chairman, SBI. He said the PLR could come down by 50 basis points. The bank has a PLR of 13.75 per cent.

MD Mallya, chairman and managing director, Bank of Baroda, pointed out that there is adequate liquidity in the system at present. “We will take a call on deposit as well as lending rates based on our ALCO report.”

Punjab National Bank and Union Bank of India have already reduced their PLRs.

Finance secretary Arun Ramanathan will meet the chiefs of private and foreign banks on Wednesday to discuss the issue.