Union Bank slashes PLR, call rates fall to 7%, Re appreciates

Banks and money markets responded positively on Monday to the extensive liquidity measures taken by the Reserve Bank of India (RBI) during the weekend. On Saturday, the RBI slashed the repo rate by 50 basis points to 7.5% with effect from November 3. It also cut the banks? cash reserve ratio, the amount of funds which banks need to hold with the RBI, by 100 basis points to 5.5% in two tranches and reduced the SLR by 1% to 24% with a view to stabilising the liquidity conditions in the system.

On Monday, Union Bank of India reduced its benchmark prime lending rate (BPLR) by 50 basis points to 13.5% with immediate effect.

?We have reduced our prime lending rates from Monday. All loans linked to PLR will now carry lower rate,? said a Union Bank official

Others banks are likely to announce similar decision soon.

Meanwhile the RBI said banks can avail the 90-day refinance facility against demand promissory notes.

The demand promissory notes should cover the principal amount of advances and prescribed rates of interest, the central bank said.

The special refinance will be provided at 7.5% repo rate, RBI said.

?The bank seeking refinance should also give a declaration that it is seeking refinance against loans and advances made against bonafide commercial and trade transactions or for financing agricultural operations and marketing of crops in excess of the principal amount as on the date of the declaration and related undertakings,? the RBI said.

?The bank availing refinance must repay the entire outstanding, if any, under the special refinance facility within this stipulated time, failing which the Reserve Bank shall debit its account with it,? it added.

The softening liquidity position in the banking system was reflected in the fact that the inter-bank call money rate dropped to 7.10-7.20%, from Friday?s close of 21%.

The rupee appreciated to at 48.64/65 against the dollar, from the previous close of 49.44/46, on hopes of fresh capital flows into the local stock market, while a shrinking gap between the offshore forward and spot rates also helped sentiment.

However, bond yields ended higher on Monday after a reduction in banks? bond holding requirements depressed demand, but a cut in the central bank?s short-term lending rate curbed a steep rise.