State-run banks to cut rates by 100-150 bps

State-run banks to cut rates by 100-150 bps
The Economic Times, May 27, 2009, Page 1

Anand Rawani & Anto Antony, ET Bureau

NEW DELHI: Government-owned banks plan to cut lending rates by 100-150 basis points — one basis point is one hundredth of a percentage point — within the next fortnight, after a finance ministry directive to lower interest rates in line with falling cost of funds. The rate cut is expected before June 12, when the finance minister is scheduled to meet the chiefs of public sector banks.

Punjab National Bank (PNB), which already has the lowest lending rates in the country, will not cut rates but will provide the benchmark for other public sector banks.

Officials at State Bank of India (SBI), Bank of Maharashtra, Uco Bank, Corporation Bank and Bank of Rajasthan confirmed the development. Corporation Bank chairman JM Garg said as the cost of funds is falling, lending rates will be cut accordingly. “...the trends in interest rates have been moving downward. We have to cut the interest rates further,” said Mr Garg.

And banks like Uco might go for a sharp rate cut, which could be in the range of 100-150 basis points. According to Uco Bank chairman and managing director SK Goel, the prime lending rate (against which rates to individual borrowers are benchmarked, depending on their creditworthiness in relation to those who qualify for prime rates) will be cut to 8% from 12% over the next six months, if conditions remain favourable. “We have been cutting interest rates and expect further cuts in the coming weeks,” Mr Goel told ET.

SBI — the country’s largest lender — is also expected to bring down its PLR, currently at 12.25%, in the next couple of weeks. But according to SBI officials, the quantum of reduction could be anywhere between 25-75 basis points, as the fall in the cost of funds is not high for the bank. SBI has cut its deposit rates across all maturities by 50 basis points with effect from May 18 to bring down the cost of funds.

Finance minister Pranab Mukherjee will be meeting chiefs of PSBs in the second week of June to ensure that the cut in policy rates is transmitted and credit flow remains robust. The additional secretary in the finance ministry in charge of banking is expected to conduct video conferences on a weekly basis with PSBs to monitor lending rates and credit growth.

Finance ministry officials said they are not putting any undue pressure on banks to bring down interest rates and have only asked them to transmit the fall in the cost of funds, if they have headroom.

"The credit flow from the public sector banks is strong and they are also trying to bring down the lending rates. Many banks like Punjab National Bank have already made sincere attempts to bring down the lending rates and others have informed us that they will look at cutting lending rates by another 100-150 bps.

Fresh loan offtake from September till April-end is almost 50% above the loan offtake for the corresponding period last year. When the finance minister meets the chiefs of public sector banks towards the end of the second week of June, bringing down rates will be on top of the agenda," a finance ministry official told ET.

The lending rates of most of the public sector banks will fall, over the next couple of weeks, to align with the rates of PNB, which has the lowest lending rates in the country. The bank currently has a PLR of 11% which is 100-150 basis points lower than its peers.

PNB chairman and managing director KC Chakrabarty told ET: "We were most aggressive on bringing down lending rates and is currently offering one of the lowest rates in the country. There is no room for us to cut rates below the current levels before June 12."