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Our Bureau

Mumbai, June 22 The Finance Minister’s fiat to public sector banks, to lower lending rates, seems to be having the desired effect as banks have started cutting their benchmark prime lending rates.

The Union Bank of India on Monday announced a 25-basis-point reduction in PLR to 11.75 per cent, with effect from July 1.

Union Bank of India is the first bank to cut lending rates following the Finance Minister’s meeting with PSU bank chiefs on June 10.

In his meeting with chief executives of public sector banks after taking charge as the Finance Minister, Mr Pranab Mukherjee, had said that banks were not passing on the benefit of the reduction in key rates by the Reserve Bank of India and had asked banks to “explore the possibility” of bringing about a further reduction in their lending rates.

When asked if other banks will also cut the lending rates, Mr M.V. Nair, Chairman and Managing Director, Union Bank of India and Chairman, Indian Banks’ Association, said, “I am sure that the other banks will follow suit”.

Meanwhile, the Kolkata-based United Bank of India said it would take a decision on lowering its BLPR by 25-50 basis points by next week. Currently, its BPLR is at 12.25 per cent.

Another public sector bank, UCO Bank is also likely to take a decision on cutting its lending rates by 50 basis points in a week. Union Bank had earlier cut its BPLR effective April 1, 2009. The bank has reduced a total of 225 basis points in five successive BPLR cuts since November 2008, it said in a statement.

The bank has no immediate plans to cut deposit rates, as it had only recently cut them.

Asked about the impact of the BPLR cut on Union Bank’s margins, Mr Nair said, “There will be a slight pressure on the margins in the first quarter. But it will be only temporary. Though the net interest margin (NIM) for the first quarter will be affected, it will improve in the next quarter. The NIM in Q1 of this fiscal should be around 2.49 per cent, the same as in Q4 of 2008-09.”

Terming the year ahead as challenging, Mr Nair said the NIM for this fiscal should be same as in the previous fiscal. The bank had a NIM of 2.85 per cent in 2008-09.

About 70 per cent of the bank’s loans are linked to BPLR.

“The timing of the cut is important. We have to support the growth momentum of the economy and ensure that the cost of borrowing of corporates and SMEs comes down,” Mr Nair said.

IDBI Bank, today, cut its deposit rates by 25 basis points to 50 basis points in different maturity buckets and also realigned its maturity buckets. The interest rate on the five-year tax savings Suvidha deposit has been reduced to 8 per cent from 8.50 per cent.

State Bank of India had cut deposit rates by 25 basis points on June 13. The bank could also be looking at a possible lending rate cut and a decision is likely by the end of this month, an official of SBI had said.

More Stories on : Public Sector Banks | Interest Rates | Fixed Deposits

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