Just a day before finance minister Palaniappan Chidambaram is scheduled to meet bankers, State Bank of India (SBI), the country?s largest commercial bank, and Mumbai-based Bank of India (BoI) announced cuts in their interest rates.
While SBI has reduced its benchmark prime lending rates (BPLR) by 25 bps effective from February 16, BoI has slashed rates 25-250 basis points on education and consumer loans, including home loans, with retrospective effect from February 1. With this revision, SBI?s BPLR now stands at 12.50%, from 12.75% per annum earlier.
The finance minister, at his last meeting with bankers, had suggested that banks review their rates. RBI governor YV Reddy, though, had kept key rates unchanged in the third-quarter review of monetary policy on January 29, but had given a veiled signal that banks could look at rate cuts as they had sufficient spreads.
Effectively, state-owned SBI?s rate cut?the first BPLR cut?would be applicable to all corporate and retail lending. However, SBI?s move has not spurred rival ICICI Bank in the private sector into action just yet. An ICICI Bank spokesperson said: ?We?ll take into account our cost of funds before taking any decision.?
An SBI official admitted to FE on condition of anonymity that the rate cut was aimed at increasing the bank?s credit off-take, which hovered at around 16%. Though this is still higher than the 14-15% credit off-take of all other scheduled commercial banks, SBI wants to increase that figure to 20% (Rs 90,000 crore) by March end. The bank increased deposit rates by 25 bps in the first week of January.
After the rate-cut, BoI?s interest spread will fall by 2-4%, said a bank spokesman.