The Union Bank of India has reduced its benchmark prime lending rate (BPLR) by 25-basis-point with effect from July 1. With the revised rates in effect, the PLR of the bank will be lowered to 11.75 percent per annum, from the earlier 12 percent per annum.
Unlike many other banks which have reduced the interest rates on deposits, the bank has kept the rates on deposit intact. The release stated, "The bank continues to protect the interests of retail depositors by offering interest at eight per cent per annum on deposits of 1,000 days and above."
With this, Union Bank of India becomes the first bank to lower the lending rates following the Union Finance Minister's meeting with PSB chiefs on June 10. It is expected that other bank will trail the move - "I am sure that the other banks will follow suit, "said M.V. Nair, Chairman and Managing Director, of the bank. Mr. Nair is also the chairman of Indian Banks' Association. In a recent statement, Nair had said that bank would take call on rate cut , in July.
Coinciding with the minister emphasis on reduction of the interest rates for the overall economic growth, the bank said "The focus of Union Bank's lending strategy has always been directed at ensuring growth in the productive sectors of the economy. In line with this strategy to ensure credit to productive sectors at lower rates for sustaining growth momentum, Union Bank has announced a downward revision in its BPLR from 12 per cent to 11.75 per cent per annum effective July 1."
The release also stated, "The BPLR of the bank was last revised downwards to 12 per cent effective April 1. This is the fifth successive reduction since November 2008 and the bank has reduced a total of 2.25 per cent in BPLR since then."
The revised rates will be applicable on both, existing and new loan accounts with FRR. The rates on such accounts are linked to BPLR. The bank has as many as 70 percent of its loans accounts linked to BPLR.
Commenting on the effect of BPLR change on the financials of the bank, Nair said, "There will be a slight pressure on the margins in the first quarter. But it will be only temporary. Though the net interest margin (NIM) for the first quarter will be affected, it will improve in the next quarter. The NIM in Q1 of this fiscal should be around 2.49 per cent, the same as in Q4 of 2008-09."
"The timing of the cut is important. We have to support the growth momentum of the economy and ensure that the cost of borrowing of corporates and SMEs comes down," he added.