SBI, Govt banks may cut rates again

03 Feb 2009

Public sector lenders led by State Bank of India (SBI) looks at further interest rate cuts. SBI chairman O P Bhatt told reporters after a meeting with Finance Minister Pranab Mukherjee. The bank is considering cutting its prime lending rate (PLR) for the second time in as many months.

 

SBI had cut PLR 75 basis points to 12.25 per cent on January 1 and has cut all new home loan rates to 8 per cent for a limited period with a clause to reset rates after one year. Kolkata-based UCO Bank Chairman S K Goel said the bank may cut lending and deposit rates 200 basis points, with a 100-basis-point reduction likely this month. United Bank of India said that it will cut its PLR 50 basis points shortly. Punjab National Bank and Bank of India said they will cut 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 sees lending rates coming down for all sectors.

 

The government will focus on boosting domestic demand in view of contracting global demand, by primarily stimulating demand in the rural areas and highly labour-intensive sectors. The banks are advised to enhance credit to productive sectors like infrastructure, small and medium industries and textiles, among others.

 

In a bid to boost the economy, the Reserve Bank of India (RBI) has taken a series of measures since September last year 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 could reduce rates further. Bankers have been reluctant to push lending rates further as reduction 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.

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