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Our Bureau

Chennai, Nov. 4 Public sector banks are cutting their lending rates. Following a meeting with the Finance Minister, Mr P. Chidambaram in New Delhi, bank chairmen said that they would slash their prime lending rates by about 0.75 percentage points. Reduction in the PLR is significant as interest rates on all loans given by a bank, fixed or floating, are linked to benchmark rates.

The move marks the first clear reversal of an upward trend in interest rates that began almost two years ago. Lending rates had climbed between 3 to 4 percentage points during the past two years. A host of measures from the Reserve Bank of India during the course of the last fortnight had set the stage for banks to act on this front.

A number of banks including State Bank of India, IOB, Indian Bank and Bank of India among others said that they would be taking a decision on the issue of cutting rates shortly. A couple of banks including Punjab National Bank and IDBI Bank had cut their lending rates by 0.50% last week.

The largest associate bank of SBI, State Bank of Bikaner and Jaipur, cut its Prime Lending Rate from 14 per cent to 13.25 per cent from November 5. So also Syndicate Bank.

Mr S.A. Bhat, Chairman and Managing Director, Indian Overseas Bank, said, “We plan to cut our lending rates by 75 basis points from 14% to 13.25%. Our Asset Liability Management committee is meeting tomorrow and we will be taking the decision there.”

Ms.Renu Challu, Managing Director, State Bank of Hyderabad also affirmed that her bank would be cutting rates, although the quantum would be decided by the ALCO meeting this week.

To cope with the rising demand for credit, banks were tapping high cost deposits, with special schemes that offered between 10.50 per cent and 11 per cent for deposits of less than 3 years. That may now come to a halt. Senior bankers told Business Line that the public should expect a cut in deposit rates as well.

More Stories on : Interest Rates | Public Sector Banks

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