Union Bank slashes PLR
By Neelima Shankar
Nov 5, 2008
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Even before the Finance Minister could ask banks to soften their interest rates, public sector bank Union Bank of India on November 3rd announced a 50 basis points cut in its benchmark prime lending rate (BPLR) to 13.5% with immediate effect.

The Bank said following the RBI's triple cut in CRR, SLR and repo rate, it had decided to cut down on its deposit as well as lending rates. This rate cut would be valid for all PLR-related loans including home, auto and corporate loans. It had already reduced its home loans rates by 50 basis points with effect from October 21st.

A senior official from Union Bank said: "As an impact of the PLR cut, the bank will have to forgo interest income of about Rs 100 crore. However, this will be more than compensated by the earnings on resources (made available through the CRR cut), which would be deployed in lending operations."

India's largest private lender, ICICI Bank is also likely to review its interest rates in the coming days after seeing the impact of RBI's recent measures. "We will review interest rates after watching the impact of RBI decision on liquidity... It is premature to consider interest rates right now, but we will review it in the next few days," said ICICI Bank's Managing Director and CEO K V Kamath.

"The government cannot actually on its part lower rates. The banks have to lower interest rates," Kamath added. Also there is urgent need to cut interest rates if an 8% growth target has to be achieved, "it is the interest rate that will drive this growth," Kamath said.

Others like HDFC Bank and Axis Bank have also pointed out on reviewing their interest rates after watching the impact of RBI steps on liquidity. State Bank of India (SBI) will also take a decision on their interest rates in the coming few days.

Another state-run lender, United Bank of India has also announced a 25 basis points reduction in lending rate to all advances linked with PLR with effect from November 3rd. "This will be applicable to education loan, housing loan, SMEs and all other loans. The reduced lending rate will also be applicable for existing loan accounts", the bank said in a Press release.


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