Delhi-based Punjab National Bank (PNB) has reduced its benchmark prime lending rate (BPLR) by 50 basis points to 11 per cent with effect from May 1.
South-based private sector lender Lakshmi Vilas Bank (LVB) has also reduced its BPLR by 25 basis points to 15 per cent. The new rate will be effective from May 4.
For PNB, this is the fifth BPLR cut since October when the Reserve Bank of India (RBI) aggressively began reducing key short-term rates — repo and reverse repo — to bring down the overall cost of funds.
The benefit of rate reduction should be available to all existing and new accounts linked with BPLR, wherever interest rates were charged at BPLR and above, PNB said in a statement.
PNB Executive Director M V Tanksale said the impact of above measures, including reduction in term-deposit rates on net interest income, coupled with better asset liability management was expected to be revenue neutral.
Citibank, ICICI Bank and Bank of Rajasthan have also reduced lending rates in the week following RBI’s annual policy for 2009-10. From April 1, most public sector lenders had reduced PLR.
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Over the next few weeks a further round of rate reduction was expected, at least two public sector bank chiefs said. There was a room for a 50 basis points cut in PLR in the next three months, said Bank of India Chairman and Managing Director T S Narayanasami.
PNB said the interest rates on housing loan have been reduced by 25 basis points for all tenors of floating option loans. With this revision, the floating rate housing loan would range from 8.75 per cent to 10 per cent, depending on tenor and amount. Similarly, the interest rates on educational loans (linked with BPLR) have also been revised down by 50 basis points.
PNB has also slashed the rate on retail term deposits (less than Rs 1 crore) across various maturities. Accordingly, peak rate of deposits now being offered for “3 years to less than 5 years” stands reduced to 7.5 per cent from 8 per cent.
LVB has also cut rate on domestic term deposits by 25-50 basis points for different maturities. The revised rate would come into effect from May 4.
To boost economic activity, since October, RBI has lowered the repo rate, or the rate at which it lends, by 425 basis points. To discourage banks from parking surplus cash, the central bank has also lowered the reverse repo rate by 175 basis points. The cash reserve ratio has also been reduced by 400 basis points to increase liquidity in the system.
On cues from RBI, all public sector banks, most private sector banks and some foreign banks have cut their deposit and lending rates. The reduction in term deposit rates between October 2008 and April 18, 2009 was 125-250 basis points, while PLR was lowered by up to 225 basis points.