Mumbai, Nov 6 (IANS) The cost of credit for households and the corporate sector is all set to fall as most state-owned banks led by India's largest lender, the State Bank of India (SBI), have cut their benchmark prime lending rate (PLR) by 75 basis points (bps).
'The State Bank of India has reduced the benchmark prime lending rate by 75 bps from 13.75 percent per annum to 13.00 percent per annum effective from Nov 10, 2008," the bank said in a regulatory statement Thursday.
The benchmark prime-lending rate is the rate at which the bank lends to its best corporate borrowers and all its other lending rates are either equal to it or higher. So, once a bank cuts its PLR by a certain number of basis points, it can cut all its other lending rates by that same number.
The SBI has also reduced the deposit rates by 50 bps across the maturities from 91 days up to 5 years and by 25 bps for deposits with maturities of 5 years and over effective from Dec 01, 2008, the statement said.
Earlier, speaking on the sidelines of a seminar organised here Thursday by Federation of Indian Chambers and Industry (Ficci) and Indian Banks Association (IBA), SBI chairman O.P. Bhatt told reporters, 'The cut by 75 basis points should be announced later today.'
Several other state-owned banks cut their prime lending rates on Thursday while a few had reduced their rates Wednesday and even earlier.
The Union Bank of India, the United Bank, Punjab National Bank, Bank of Baroda, Canara Bank, Bank of India, Allahabad Bank, Indian Overseas Bank, Oriental Bank of Commerce, Syndicate Bank and Dena Bank, among others, have already cut their prime lending rates by 0.75 percent.
Some of these banks also announced a cut in their deposit interest rates while some have left them unchanged for the moment.
The lending and deposit interest rate cuts by banks follow their assurances to Finance Minister P. Chidambaram Tuesday that they too would cut rates after the central bank, the Reserve Bank of India (RBI), slashed key rates to lower the cost of borrowings for commercial banks.
Even the chief executives of foreign and private banks assured the government that they would seriously examine a reduction of interest rates. The assurances were given to Finance Secretary Arun Ramanathan during a meeting Wednesday.
Chanda Kochhar, joint managing director of India's largest private lender, ICICI Bank, hinted Thursday that her bank too would cut rates. The bank was 'dynamically watching' its interest rates, she said.
Without categorically confirming that her bank would actually cut rates, Kochhar said the interest rates should come down in the interest of the economy.
She too was speaking on the sidelines of the FICCI-IBA organised banking seminar here Thursday.
The lending rate cuts have now become possible after the RBI, in a dramatic announcement last weekend, said it was reducing the repo rate - the rate the RBI charges on borrowings by commercial banks - by 50 basis points to 7.5 percent.
The RBI also announced a cut in the cash reserve ratio (CRR) by 100 basis points to 5.5 percent and the statutory liquidity ratio (SLR) by 100 basis points to 24 percent.
Both these measures released additional cash in the hands of banks as the cash reserve ratio is the minimum cash they have to retain, while SLR is the amount that these institutions have to maintain as government securities.
With the cut in cash reserve ratio alone, the central bank hoped to add additional liquidity worth Rs.400 billion (Rs.40,000 crore, or $8.5 billion) into the country's financial system.
The additional liquidity has given banks leeway to cut deposit interest rates as they can afford to make their deposits slightly less attractive to their customers. In a tight liquidity situation, banks were forced to hike deposit rates in a bid to make their deposits more attractive to customers.
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