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ENS ECONOMIC BUREAU
MUMBAI, Mar 1: State Bank of India (SBI) and Bank of India (BoI) slashed their prime lending rates (PLRs) to 12 per cent within hours of the Reserve Bank of India's decision to cut bank rate, repo rate and cash reserve ratio (CRR). Bank of Baroda will cut its PLR to an identical level and Dena Bank will bring it down to 12.5 per cent over the next few days.
The financial institutions led by ICICI and Industrial Development Bank of India are likely to follow suit later this week. ICICI executive director Lalitha Gupte said: "We always welcome any move to bring down interest rates. We will finalise our view in the next few days." At present, ICICI's long-term rate is pegged at 14 per cent and medium term prime rate at 13.5 per cent.
ICICI senior general manager Kalpana Morporia said that the rate cut announced by the RBI will have an immediate softening impact on short term and its impact on medium and long term need to be studied. ``There would not be any pressure on the balance sheet as the institutionfixes its lending rates at the time of disbursement in accordance with the cost of resources,'' she said adding that any benefit out of the reduction in interest rates rate will be passed on to the customer.
Foreign banks and new private sector banks are expected to lower their prime lending rates as well as deposit rates soon. ICICI Bank on Monday brought down its differential rates between 25 basis points and 175 basis points. "We will take a decision on the PLR cut at the next board meeting," ICICI Bank's senior executive PH Ravikumar said. At present, ICICI Bank's PLR is 13.5 per cent.
SBI was the first to react to the Reserve Bank's announcement by slashing its PLR by 100 basis points to 12 per cent. Bank of India announcement followed in quickly with Bank of Baroda and Dena Bank announcing the decision to cut its PLR later this week when their boards formally meet. SBI chairman GG Vaidya said the bank's PLR has been reduced by one per cent to 12 per cent, while the medium-term prime lending rate(MTPLR) from 12.75 epr cent to 12 per cent, with immediate effect. SBI and BoI had pegged their PLR at 13 per cent and MTPLR at 12.75 per cent and 12.9 per cent, respectively.BoB chief K Kannan said the bank's spread will come down as a fallout of the PLR cut but that would be compensated by the rising income out of the fall in YTM of government securities. He, however, ruled out the possibility of an immediate credit pick up as a result of the fall in interest rates.
BoI's board will meet on March 4 to review the emerging situation along with the deposit rate, said BoI general manger VH Ramakrishna.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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