Banks Set To Cut Lending, Deposit Rates By 50 Bps

Mumbai, October 29: | Updated: Oct 30 2002, 05:30am hrs
The banking industry is gearing up for a lending rate cut following the Reserve Bank of Indias (RBI) move to cut the Bank Rate, cash reserve ratio (CRR) and the repos rate by 25 basis points (bps) each. However, the industry is linking a prime lending rate (PLR) cut to one in deposit rates. A reduction of 50 bps on the both the lending and deposit rate sides are seen coming through.

In a quick response to the busy season credit policy, the State Bank of India (SBI) has reduced its deposit rate by 50 bps accoss all muturities on Tuesday. The deposit rate cut will be followed by a lending rate cut of similar percentage over the next few days.

SBI chairman, Janki Ballabh, said the bank is taking a view on the PLR cut and an appropriate decision will be taken shortly.

Mr Ballabh said that the RBI has opted for a fine balancing act between high market expectations and ground realities, which have had a positive outcome on the economy.

There is a clear sign from the RBI to the banking industry to reduce the PLR further, he said.

Though of late there has been large credit uptake through the sub-PLR route, the PLR is still relevant as 60 per cent of the banks credit portfolio is PLR-sensitive along with the 40 per cent of priority sector lending. Besides, retail credit rate which is driving almost 50 per cent of the new credit uptake, also depends upon the PLR, he said.

Bank of Indias chairman and managing director, KV Krishnamurthy, has said that a PLR cut depends upon the individual banks cost of the funds and non-performing assets.