The Hindu Business Line : Union Bank, HDFC Bank cut lending rates

‘Transmission’ effect
Union Bank has slashed its BPLR by 75 bps to 12.50%
HDFC Bank too announced a two-tranche cut of 25 bps each
Others may announce cuts in BPLR over the next few days

Our Bureau

Mumbai, Dec. 8 The 100 basis points cut in short-term rates announced by the Reserve Bank of India, as part of its ‘Growth stimulus’ package, last week is beginning to have the desired ‘transmission’ effect. Banks have started cutting lending rates.

The public sector Union Bank of India on Monday slashed its Benchmark Prime Lending Rate (BPLR) by 75 basis points to 12.50 per cent.

The private sector HDFC Bank too announced a two tranche cut of 25 basis points each in its BPLR to 16 per cent.

Among others, banks such as State Bank of India, Bank of India, Bank of Baroda, are expected to announce cuts in their BPLR over the next few days.

Liabilities side

On the liabilities side, it’s a case of who bites the bullet first by cutting the interest rates on deposits, said a senior official of a public sector. Banks are seen holding on to the current interest rates a tad longer as retail deposits constitute ‘bread-and-butter’ for banks and they wouldn’t want to divert the deposits to rivals.

“Credit is expected to flow more freely to the productive sector with the cuts in BPLR. However, sooner than latter, banks will have to take a call on deposit rates too. Else, their net interest margins will come under pressure,” said the banker.

Announcing the ‘Growth Stimulus’ package last Saturday, the RBI Governor, Dr D. Subbarao, said “We hope that the measures announced today encourage banks to cut lending rates. The financing cost, transaction cost, and administrative cost of passing on this money should be as small as possible.”

Union Bank has revised its BPLR with effect from Monday. Last month, the bank had cuts its BPLR by 75 basis points last month to 13.25 per cent in two tranches. In effect, the BPLR has been revised downwards by 150 basis points to 12.50 per cent from 14 per cent in a span of 35 days.

“The revised BPLR shall be applicable to all existing and new accounts where the floating interest rate is charged at BPLR and above. This will have a positive impact on micro, small and medium industries sector and exporters resulting in cheaper credit for them,” the bank said in a press release.

In the case of HDFC Bank, the BPLR cut will be effective in two tranches of 25 basis points each – the first from December 15 and the second from January 1, 2009. “The drop in the BPLR is pursuant to the reduction in the bank’s incremental cost of funds,” HDFC Bank’s Executive Director,Mr Paresh Sukthankar said.

YES Bank had cut its PLR by 50 basis points on Saturday, post the RBI announcement, to 16.5 per cent with effect from Monday.