After cutting its base rate last Tuesday by 25 basis points, the country's largest lender, State Bank of India (SBI), on Saturday reduced its benchmark prime lending rate (BPLR) by a similar margin. The public sector bank’s BPLR now stands at 14.5 per cent.
BPLR is the erstwhile reference lending rate to which all loans were linked. Borrowers who availed of loans before July 2010 and have not converted them to the base rate would be affected by changes in BPLR.
Regarding the impact on the bank's net interest margins, Sunil Pant, chief general manager, SBI, said seven per cent of the total domestic loan book is linked to the BPLR. So the impact is estimated at about Rs 100 crore, in terms of interest income. The base rated-linked portfolio is close to 67 per cent of loans. The combined effect of base rate and BPLR cut is estimated at Rs 1,300 crore.
| MORE CUTS FROM BIG LENDER |
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Last Monday, the Reserve Bank of India, while keeping the key interest rates unchanged, had cut the cash reserve ratio (CRR) by 25 basis points to 4.5 per cent of the banks’ net time and demand liabilities (NTDL). The banks don’t earn any interest on CRR. This move will be releasing Rs 17,000 crore in the banking system enabling the banks to lend it to the productive sectors. SBI as the biggest lender would gain maximum Rs 2,500 crore from this additional liquidity.
The bank had already cut its base rate to 9.75 per cent last week immediately after RBI announced its decision to reduce cash reserve ratio, or the portion of money banks are required to park with RBI.
Banks lobby group Indian Banks Association (IBA) is in talks with RBI to invoke sunset clause on BPLR meaning all the borrowers whose rates are linked to BPLR would have to mandatorily shift to the base rate linked rates.