State Bank of India of India has reduced its benchmark prime lending rate (BPLR) from 14.75 per cent to 14.50 per cent. This announcement comes three days after the bank cut its base rate from 10 per cent to 9.75 per cent.

The bank’s BPLR and base rate cuts are in response to the central bank cutting the amount of cash banks need to park with it (cash reserve ratio) by 25 basis points to 4.50 per cent from 4.75 per cent in its mid-quarter monetary policy review. With India’s biggest bank paring both its lending rate benchmarks, other banks are expected to follow suit.

NIM: marginal impact

According to Sunil Pant, Chief General Manager, SBI, about 74 per cent of the bank’s loan portfolio is at floating interest rate. Of this, 67 per cent is linked to the base rate and 7 per cent to BPLR.

The BPLR cut will come into effect from September 27. SBI’s loan portfolio stood at Rs 9,45,819 crore as at June-end 2012.

“There will be a marginal 2-3 basis point impact on the net interest margin or NIM (due to the cut in the lending rate benchmarks). This is because loans get re-priced immediately once the lending rate benchmark is cut, while the deposit rate cut gets transmitted with a lag (only on maturity),” said Pant. Earlier this month, SBI had slashed domestic term deposit rates by up to 100 basis points.

Surplus liquidity

Following the sustained flow of deposits, the cut in the statutory liquidity ratio (SLR) in July and the latest round of CRR cut, Pant said the bank has surplus liquidity of about Rs 1 lakh crore. SLR is the portion of deposits banks are mandated to invest in Central and State government securities. RBI cut this key reserve ratio to 23 per cent of deposits from 24 per cent in July.

Besides investing in government securities and bonds, the bank is consciously channelling the liquidity as loans to small and medium enterprises (SMEs), mid-corporates and home and auto loans.

“We cut the lending rates to SME and mid-corporates in June as we wanted to attract better rated borrowers into our fold. Better rated borrowers’ means less capital charge. For the same reason, we cut home and auto loan rates in August,” said Pant.

(This article was published on September 22, 2012)
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