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Rate signal: Dr K. C. Chakrabarty, Chairman and Managing Director, Punjab NationalBank, and Mr S.S. Bhandari, General Manager, at a press conference in Mumbai onMonday. - Paul Noronha

Our Bureau

Mumbai, Dec. 29 Anticipating a further reduction in interest rates by the central bank, Punjab National Bank on Monday announced a 50 basis points cut in its benchmark prime lending rate from 12.5 per cent to 12 per cent with effect from January 1, 2009.

With this, PNB’s lending rates will be the lowest among its peer banks.

Currently, State Bank of India’s BPLR is the lowest among public sector banks, at 12.25 per cent.

This will result in a reduction in all loans linked to BPLR, including retail, agriculture and micro small medium enterprises loans.

Bank of Baroda and Bank of India had last week announced cut in BPLR by 75 basis points to 12.5 per cent with effect from January 1.

Speaking to reporters, here, Dr K.C. Chakrabarty, Chairman and Managing Director, PNB, said, “We must respond to the signal given by the monetary authority.”

He also said further cut in BPLR is unlikely unless inflation moves down significantly from the current levels.

Given that inflation has dropped to 6.61 per cent and that demand for credit has slowed down, it is expected that the Reserve Bank of India may reduce key interest rates further.

PNB had earlier cut BPLR from 14 per cent to 13.5 per cent with effect from November 1, 2008, and further to 12.5 per cent from December 1, along with reduction in retail lending rates.

PNB is hopeful of maintaining its Net Interest Margin at 3.4-3.5 per cent, despite the reduction in rates, Dr Chakrabarty said.

“I don’t see margins moving down or improving significantly. The cost of funds will go down by 100 basis points by the middle of next year,” he said.

PNB also announced a cut in deposit rates by 100 basis points, from 9.5 to 8.5 per cent, for deposits of one year to less than three years.

The aggressive reduction in deposit rates is corresponding to the cut in lending rates, he said.

The bank also reduced interest on floating rates housing loans and fixed rate car loans by 50 basis points.

Mumbai-based Dena Bank, too, announced a reduction of 75 basis points in its BPLR from 13.5 per cent to 12.75 per cent and a reduction of 25 to 100 basis points in deposits across maturities, with effect from January 1, 2009.

More Stories on : Public Sector Banks | Interest Rates | Punjab National Bank

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