SBI cuts PLR by 0.75%; loan rates may dip

After the easing of monetary policy by the Reserve Bank of India (RBI) to make continuous flow of money in the economic system and to provide adequate liquidity, several banks including country’s largest lending bank, State Bank of India (SBI) have announced to cut their benchmark lending rates.

The SBI on Thursday (October 6) announced to cut down its Prime Lending Rate (PLR) by 75 bps (0.75%) and deposit rates by 25 to 50 bps. With this, the PLR has come down to 13.00% from the current 13.75%, while the bank deposits rates vary upon the maturity periods. All revisions of rate will be effective from November 10 except deposit rates for more than 5-year period.

The new deposit rate for the period of 91 days to less than 5 years has been reduced by 0.50%; while for more than 5-years maturity periods, it has been reduced by 25 bps that would be effective from December 01, 2008, the SBI officially stated.

Some other public sector banks that usually follow the SBI’s step have either reduced or announced to reduce the PLR by a range of 50 to 75 bps. The Union Bank of India (UBI), the United Bank, Punjab National Bank (PNB), Bank of Baroda (BoB), Canara Bank, Bank of India (BoI), Allahabad Bank, Indian Overseas Bank (IOB), Oriental Bank of Commerce (OBC), Syndicate Bank and Dena Bank have already cut their prime lending rates by 0.75 percent, while other public sector banks have announced to cut their PLR soon.

The impact of easing the monetary policy has also put an effect on the private sector banks. Consequently, major private sector banks, like ICICI and HDFC bank, are also considering to cut their PLR, but none has announced to revise it so far.

Similarly, foreign banks like HSBC, Barclays, ABN AMRO and Citibank have also indicated to review the rate after examining the market condition, the sources said.

RBI, India’s central bank, on October 31 had announced to deduct Cash Reserve Ratio (CRR) – the minimum cash banks have to retain with RBI – by 100 basis points to 5.5 percent and the statutory liquidity ratio (SLR), the amount these institutions have to maintain as government securities, by 100 basis points to 24 percent.

This measurement of RBI has enhanced the liquidity level of Rs.1,40,000-crore in the system.

The steps of cutting down the PLR is a clear indication that the cost of credit for households and the corporate sector is all set to fall as 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.

So, interest rates on the loans are expected to come down soon and would provide some relief to the borrowers and boost the credit market that had been slowed down due to higher inflation and increasing global recession.