Banks to further cut lending rates

Auto and home loan seekers can expect further cut in the lending rates with the public sector banks gearing up for the second round of cut in the benchmark lending rates by up to 50 basis points during December.

Banks have already started reducing the deposit rates and with more liquidity infusion by the Reserve Bank there would be more scope for cutting lending rates to spur demand, said a senior banker.

Banks have started assessing asset liability situation in the light of the cuts in deposit rate coming into effect from next week, he said.

Another senior banker said, further cut in Benchmark Prime Lending Rate (BPLR) in between 25-50 basis points by various banks is likely to be announced in December.

In the first round, several public sector banks have reduced their BPLR by 75 basis points following an appeal by the Finance Minister P Chidambaram earlier in the month.

Chidambaram had said lowering of lending rates by the state-owned banks would also put competitive pressure on their private sector counterparts to announce similar cuts.

"Competition from public sector banks will force private sector banks to reduce their lending rates sooner than later. It will happen sooner than later," Chidambaram had said.

Taking the lead, country's second largest lender Punjab National Bank has already decided to reduce BPLR by 100 basis points to 12.5 per cent, which would automatically reduce PLR-linked loans by the same margin.

The revised BPLR will be applicable to all existing and new accounts, PNB said, adding, the decision to reduce rate was taken "in response to monetary measures taken by RBI in November such as reduction of repo rate from 8 to 7.5 per cent, CRR (Cash Reserve Ratio) from 6 to 5.5 per cent and SLR (Statutory Liquidity Ratio) from 25 to 24 per cent."

The first round of lending rate cut by Punjab National Bank came into effect during the first week of November.

The BPLR was then revised downward by 50 basis points to 13.5 per cent.

Currently, most of the banks have BPLR around 13 per cent.

The reduction of interest rates by the PSU banks follows a number of steps taken by the RBI to inject into the banking system Rs 2,70,000 crore since October and cuts in the short-term (repo) rates, signaling soft interest rate regime.