Public sector banks are slowly following leader State Bank of India in cutting lending and deposit rates.
MUMBAI: Public sector banks are slowly following leader State Bank of India in cutting lending and deposit rates.
On Monday, Bank of India cut its prime lending rate by 75 basis points to 12.50% and deposit rates by 50-100 basis points across maturities from January 1. A basis point is 0.01%. However, bankers are divided about whether these cuts will be enough to arouse demand for credit from companies. B A Prabhakar, executive director, Bank of India, said the cut will bring the bank in line with Reserve Bank of India’s policy rates.
“The whole purpose (of the cuts) is to revive demand (for credit) from the industry. However, it is now up to them,” he said.
K C Chakrabarty, chairman and managing director at Delhi-based Punjab National
Bank, said credit demand is healthy, but it will be wrong to link demand to rates.
“Credit today is not a function of interest rates. Demand is detached from rates and a 1-2% cut in rates does not make a difference, because banks are the only source of credit,” he said.
PNB was the first public sector bank to cut lending rates — by 100bps to 12.5% — effective December 1. Union Bank of India had also announced a cut in interest rates just after RBI cut its repo and cash reserve ratio rates by 100 basis points each in the first week of December.
A C Mahajan, chairman and managing director at Bangalore-based Canara Bank, said in an interview to a newspaper his bank had cut its benchmark lending rate by 75 basis points to 12.5%. However, there was no official confirmation, and Canara Bank
officials were unaware about the cut. When contacted, N R Venkatramani, general manager of risk management, said he could not confirm a PLR cut by the bank. Bank of Baroda was expected to announce a 75bps reduction, but officials from the bank could not be reached for a confirmation.
State Bank of India started the latest rate cutting spree after it revised its prime lending rate downwards on Saturday. The bank cut its PLR by 75bps from 13% per annum to 12.25%.
The new benchmark rate will be effective from January 1. Among the private banks, HDFC Bank announced a 50 bps cut to 16% earlier this month.
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