Punjab National Bank (PNB), the country’s second-largest public sector bank, has reduced its marginal cost of funds-based lending rate (MCLR) by 5-30 basis points across various tenors with effect from January 1.

The base rate has also been reduced from 9.25 per cent to 9.05 per cent, said sources close to the development. The one-year MCLR has come down to 8.05 percent from 8.15 per cent and one-month MCLR has come down to 7.50 per cent from 7.80 per cent.

PNB last revised its MCLR on November 1 last year. The latest move is expected to put pressure on the margins of the public sector bank during the fourth quarter this fiscal. PNB, which has been going through turbulent times in recent years, is slowly crawling out of the adverse impact the ₹13,000-crore scam perpetrated by Nirav Modi had on its balance sheet.

Small savings interest rates

Given that the government has opted to keep the small savings interest rate unchanged for the January-March quarter, PNB may not be able to reduce its deposit rates from the current level as any such move could lead to flight of deposits to small savings schemes, economy watchers said. Small savings interest rates are on average up to 100 basis points higher than the rates currently offered by commercial banks.

Infact, the government had not paid heed to the recent RBI suggestion to bring down the interest rates on small savings.

Even after the latest MCLR rate-cut, PNB’s one-year MCLR at 8.05 per cent is lower than State Bank of India’s one-year MCLR of 7.90 per cent. It may be recalled that SBI had, with effect from December 10, cut its MCLR by 10 basis points.

PNB’s MCLR-cut comes at a time when there is heightened uncertainty over the Indian economy, which hit a six-year quarterly low of 4.5 per cent GDP growth in July-September 2019.

Banks have become largely risk-averse, which is starkly evident from the 60 per cent fall in the total flow of resources from the banking system to the commercial sector in the first half of this fiscal at ₹3,94,035 crore (₹9,93,312 crore in H1 2018-19).

comment COMMENT NOW