Verma added that once the cost of deposits comes down, the bank will reduce its PLR as it will not affect its spreads. However, we have not taken a policy decision to this effect. Apart from SBI, all banks will have to essentially move the PLR down in keeping with the RBIs line of thinking, Verma said. However, Verma felt that a cut in interest rates will not guarantee a credit pick-up.
Kalpana Morparia, general manager, ICICI, said: Our lending rate will come down only after our borrowing cost falls. ICICI has two rates the medium term prime rate (MTPR) at 13.5 per cent and the long-term prime rate (LTPR) at 15 per cent. The MTPR, which is a more dynamic rate, will come down before the LTPR as the cost of short-term liabilities are expected to fall due to the bank rate cut. There will be a lagged effect before the interest rate fall affects LTPR, said Morparia.
A top Industrial Development Bank of India (IDBI) official said, We will cut prime rates only if there is a reduction in the cost of borrowing. In case the rates fall in the private placement market where we raise funds, IDBI will consider a PLR cut.
Bank of Baroda chairman and managing director K Kannan said the issue of a PLR cut would be discussed by the board. He pointed out that a cut in deposit rates will bring down the cost of funds only after a lagged effect.
