SBI offers lowest PLR at 10.25%

Cuts deposit rates by 0.25% w.e.f Jan 1

State Bank of India (SBI) announced a 25 basis point reduction in its benchmark prime lending rate (PLR) to 10.25 per cent, effective January 1. This makes its PLR "" called State Bank Advance Rate (SBAR) "" the lowest in the industry.

What's more, since all loans (except for commercial paper, Mibor and gilts-linked ones) currently linked to PLR, medium-term lending rate and short-term advance rate will now be linked to SBAR, SBI home loans will come down by 25 basis points in the new year.

Car loans, personal loans and other developmental loans such as advances for buying tractors, too, becomes cheaper by 25 basis points.

"Loans that are presently linked to PLR, medium term lending rate and short-term advance rate shall accordingly stand reduced by 25 basis points," said an SBI release.

This is even as home loans and personal loans were not to be covered by the benchmark PLR concept based on the Indian Banks' Association's (IBA) formula as banks are already lending way below their PLR.

As per the IBA guidelines, interest rates for consumer durable loans, home loans could be decided by banks themselves without reference to the benchmark PLR.

SBI also announced a cut in its interest rates by 0.25 per cent with effect from January 1 on domestic term deposits with maturity of two year to less than three years and three years and above.

As such, the revised interest rate on deposits of one year to less than three years would be 5 per cent while for maturities of three years and above at 5.25 per cent.

The interest rates for deposits of 15 to 45 days, 46 to 179 days, 180 days to less than one year would continue to remain at four per cent, 4.5 per cent and 4.75 per cent per annum, respectively.

Other state-owned banks "" Bank of Baroda (BoB), Union Bank of India, Punjab National Bank and Canara Bank "" earlier announced their plans to drop their respective benchmark PLRs by 25 basis points.

The revised benchmark PLR will in the new year range from as low as 10.25 per cent to 10.75 per cent (see table).

BoB is also working on the proposal of passing the benefit of reduction in the benchmark PLR to this segment through linking them with the benchmark PLR.

These reductions are in response to the Reserve Bank of India (RBI) 'suggesting' banks to determine benchmark PLR by taking into account actual cost of funds, operating expenses and a minimum margin to cover regulatory requirement of provisioning, capital charge and profit margin.

The rationale behind this move is to bring about greater transparency and uniformity in the pricing of lending products.

Union Bank of India took the lead on December 11 to drop its benchmark PLR to 10.75 per cent. BoB and Canara Bank, both will also dispense with their prime term lending rate and other tenor-linked rates, as all lending rates will be linked to the BPLR.

Compared to the earlier system of tenor linked/maturity wise PLRs, the new system of single benchmark PLR will facilitate greater understanding by customers.