Interest rate cut round the corner

Your loans may just get cheaper in the next few weeks, with increasing pressure on public sector banks to reduce interest rates and boost credit, reports Mahua Venkatesh.

Your loans may just get cheaper in the next few weeks, with increasing pressure on public sector banks to reduce interest rates and boost credit.

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The benchmark prime lending rates could fall further by about 50-75 basis points next month.

Meanwhile, the country's largest lender, State Bank of India, on Friday announced a freeze on auto loan rates at 10 per cent for a period of one year.

Punjab National Bank has said that it would take a decision on the issue soon.

However, this might not be so easy for banks to implement, as PSU bank chiefs underlined the need to have a strong and healthy deposit growth to keep the credit growth on track.

A cut in interest rates would mean reduction in deposit rates as well.

While benchmark prime lending rates (PLR) for state-owned banks are still over 12 per cent, private sector banks have much higher PLRs exceeding 13.5 per cent.

Private banks have not cut rates despite PLR being cut in recent times. Deputy chairperson of the Planning Commission, Montek Singh Ahluwalia felt that, “It is a golden opportunity for private banks to set base in India. They are not making money in the west because of the slowdown. They can use the opportunity here.”

“We cannot reduce deposit rates to a point where we lose customers,” Allen CA Pereira, chairman and managing director, Bank of Maharashtra told Hindustan Times.

“Though stock markets are volatile, they may just switch to small savings instruments, and to reduce interest rates without lowering deposit rates is not a feasible option,” he added.