The Hindu Business Line : Punjab National Bank not to hike lending rates now

Punjab National Bank (PNB) has no plans to hike lending rates on industrial as well as home loans in the short to medium term, that is up to March 2007, but might go in for further deposit rate increase in the coming days in tune with industry trend.

"With the recent hike in cash reserve ratio (CRR), deposit rates will have to increase to support incremental credit growth. Signs of increase in deposit rates are already visible. I don't think we can remain insulated (cut off) from the industry trend," Mr S.C. Gupta, Chairman and Managing Director, PNB told Business Line.

He admitted that hardening interest rates, change in sentiment and faster growth in credit than deposits were putting pressure on banks such as PNB to look at further increase in deposit rates.

PNB had last month hiked interest rate on domestic term deposits for 180 days to less than two years by 25-50 basis points.

Prior to this revision, the bank had increased deposit rates on August 7. Its deposit base stood at about Rs 1,24,000 crore and its cost of deposits was 4.35 per cent.

Mr Gupta highlighted that the bank would have to make additional Rs 600 crore deposit with the Reserve Bank of India on account of the 0.5 per cent increase in CRR in two stages.

"We will take an interest income hit of Rs 10-15 crore, but this loss can be easily made up from other avenues. It is not big amount for the bank," he said.

He said that PNB wants to increase the proportion of low-cost current account savings account (CASA) to 50 per cent of the deposit base from the current 49 per cent.

Lending rate

On lending rate, Mr Gupta said there was no plan to increase the prime-lending rate and indicated that this stance would be maintained till March next year. "We have already revised our PLR twice, once in May and the other in August and taken it from 10.75 per cent to 11.5 per cent. I am not going to increase it further. But I will re-align interest within the sub-PLR", he said.

PNB's total business turnover as on September 30, 2006 stood at Rs 2,10,755 crore, registering a growth of 21.6 per cent. In the first half of the current fiscal, deposits had grown by 17.4 per cent and advances by 28.9 per cent.

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