Lending rates might not lower drastically
By Neelima Shankar
Jun 3, 2009
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Banking majors have ruled out any drastic reduction the lending rates against the corporate demand and persistent government nudges.

Banks have indicated the possibility for the rates cuts by 50 to 100 basis points in the near future against the corporate demands for 400-500 basis points rate cut.

The union had issued a directive stating that the banks and industry associations must meet regularly to encourage corporate credit flow. Following the directive, a meeting was held between the members of Indian Banks' Association, Confederation of Indian Industry and Federation of Indian Chambers of Commerce and Industry.

"We have told corporates that lending rates can be cut by 50 to 100 basis points (bps) from the current level in the near to medium term, " said a bank CEO in the meeting. He also reminded that most of the loans were extended at rates below the prime lending rates. The PLR for PSU ranges between 12-12.5 percent, while for private banks it varies between 14 to 16 percent.

The PSU bank chiefs, present at the meeting pointed that nearly three-fourth of the lending happen at below PLR rates. The PLR for the banking majors including Bank of Baroda, Union Bank of India, Bank of India, Canara Bank and Dena Bank is fixed at 12 percent. PNB has the lowest PLR in the industry at 11 percent.

The next meeting is scheduled on June 10, between finance minister Pranab Mukherjee and chiefs of PSBs to review performance of banks. It is expected that minister will ask the banks to lower the lending rates.


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