ICICI Bank, the country’s second largest lender, today announced a 50 basis point reduction in its benchmark lending rates, while State Bank of India's Chairman O P Bhatt said there was scope to lower lending and deposit rates 25 basis points, though he did not provide not a timeframe.
In a statement, ICICI Bank said that following the latest round of cuts, effective from tomorrow, its floating reference rate, applicable to floating rate retail loans, would drop to 12.75 per cent, while the benchmark advance rate (I-Bar) would fall to 15.75 per cent. The bank has, however, left deposit rates unchanged for the moment.
| RATE LIST | |
| Prime Lending Rate (%) | |
| PNB | 11.00 |
| SBI | 12.25 |
| ICICI Bank (FFR) | 12.75 |
| ICICI Bank (I-BAR) | 15.75 |
| HDFC | 13.75 |
| Axis Bank | 14.75 |
| HDFC Bank | 16.00 |
| I-BAR : Benchmark advance rate FFR : Floating reference rate | |
While new borrowers can avail of cheaper loans, the move will also benefit the bank’s existing retail loan customers who have availed of loans at floating rates.
ICICI Bank said the reduction was possible because of a decrease in the cost of funds, and margins would not come under pressure.
The cost of funds for the private sector bank — which has been seeking to reduce its dependence on high-cost bulk deposits and was focusing on current account and savings bank account (Casa) balances — had dropped 50 basis points to around 7 per cent at the end of the last financial year. In addition, its net interest margin (NIM) increased from 2.2 per cent at the end of March 2008 to 2.4 per cent at the end of March 2009.
In contrast, SBI, which has seen a build-up in high cost fixed deposits, has seen its NIM drop from 3.07 per cent at the end of March 2008 to 2.93 per cent at the end of March this year.
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This was despite a 23 per cent growth in Casa during the last financial year. SBI has refrained from a reduction in its benchmark prime lending rate (BPLR), and has instead focused on cutting rates for certain segments, to ensure that NIM stayed above 3 per cent.
Over the next few weeks, some of the public sector banks are expected to reduce rates following more persuasion by the government. “We will look at the cost of funds as well as the net interest margin before we decide on fresh reduction in lending rates,” said a public sector bank chief.
The Reserve Bank of India has also said that banks have room to lower lending rates owing to the steep reduction in policy rates since October last year.
ICICI bank has reduced its lending rates 150 basis points over the last six months.
The reduction was implemented in three tranches, with the last round on April 21 when lending rates were pared 50 basis points and deposit rates lowered 25 to 50 basis points. With effect from May 11, ICICI Bank had pruned deposit rates 25 to 50 basis points.
With the latest round of lending rate reductions, ICICI Bank is now in line with public sector banks, some of which, like SBI — the country’s largest bank, have lowered the benchmark lending rates 150 basis points.
Over the last six months, Punjab National Bank has gone for the steepest reduction in lending rates, with its benchmark prime lending rate (BPLR) at 11 per cent.