SBI, PSBs likely to further cut rates

After a meeting with Finance Minister Pranab Mukherjee SBI chairman O P Bhatt briefed reporters about the possibility of public sector banks led by State Bank of India (SBI) will look at further interest rate cuts. He told that the bank is thinking of cutting its prime lending rate (PLR) for the second time in as many months.

Earlier on January 1 SBI had cut PLR 75 basis points to 12.25 per cent and has also cut all new home loan rates to 8 per cent for a limited period with a clause to reset rates after one year.

Finance Secretary Arun Ramanathan notified after public sector bank chiefs met Mukherjee, “Since deposit rates have come down, there is a general expectation that interest rates will come down”.

Kolkata-based UCO Bank Chairman S K Goel told the bank might cut lending and deposit rates 200 basis points, with a 100-basis-point reduction possible this month. The bank soon will be launching a scheme similar to SBI’s.

United Bank of India informed that it will cut its PLR 50 basis points soon.

While Punjab National Bank and Bank of India informed they will be cutting interest rates after inflation dips further and Bank of Baroda and Bank of Maharashtra said they will review the rates after a fortnight. Canara Bank also seems to cut down lending rates for all sectors.

Mukherjee pointed out the government will focus on boosting domestic demand. “In view of contracting global demand, we have to focus on domestic demand by primarily stimulating demand in the rural areas and highly labor-intensive sectors,” he said.

The banks have been advised to increase credit to productive sectors like infrastructure, small and medium industries and textiles, among others.

On the other hand since September last year with an aim to boost the economy, the Reserve Bank of India (RBI) has taken a series of measures including cuts in the cash reserve ratio and the repo and reverse repo rates to inject liquidity into the system and signal a soft interest rate regime.

But last week RBI said banks can reduce rates further. However since November, public sector lenders have reduced lending rates up to 200 basis points, while private banks have lowered rates 50 basis points. In comparison to this, deposit rates have been reduced up to 300 basis points.

Bankers are not willing to cut lending rates further as they claim that the cost of deposits has not come down significantly. They told further cut in deposit costs will result in investors shifting to small savings schemes such as post office deposits and public provident fund, which offer 8 per cent returns.

SBI to review on rate cuts in ALCO meet

State Bank of India (SBI) Chairman O P Bhatt while indicating at interest cut in the near future notified that although several banks have cut down their rates in the recent past but these have not been done in a uniform way and across the industry.

He informed the reporters, "In the past 2-3-months, there have been some rate cuts by banks but these have not been across the industry and not uniform."

He pointed out there are possibilities that banks might cut rates around March, and added that there is enough liquidity in the system.

When asked about more cut in PLR and other interest rates by SBI, Bhatt pointed out that its "asset-liability committee (ALCO) meets every week" and would look into the matter.

Bhatt further stated, "We will factor in the policy inputs" along with other factors (while taking a decision on its rates).

He stated SBI is amongst the first banks to reduce its prime lending rate (PLR) as also its deposit rates.

He informed, "SBI reduced its deposit rates by 1.50 per cent".