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MUMBAI -- The country's largest private sector lender ICICI Bank has become the first major bank to cut its lending and deposit rates by 0.25 percent following the Reserve Bank cutting interest rates by 0.50 percent two days ago.

Accordingly, the bank's base rate or the minimum rate of lending, stands reduced by 25 basis points to 9.75 percent, while the prime lending rates also saw a similar reduction to 18.50 percent. "With the easing of systemic liquidity, we have already seen some correction in wholesale deposit rates. We expect the cost of funds to gradually come down and this reduction in the lending rates is a proactive move by us to pass on the benefit to our valued customers," managing director and chief executive Chanda Kochhar said in a statement explaining the reason for the reductions.

The revised base rate is applicable from April 23, the bank said. The move comes a day after state-run mid-run bank IDBI Bank announced a 0.25 percent cut in lending rates while a slew of other banks, including HDFC Bank, have also hinted at similar moves since the RBI announcement. The ICICI has also cut rates on loans under the older BPLR (benchmark prime lending rate) regime by 0.25 percent to 18.50 and for consumer loans, apart from cutting its floating reference rate (FRR) by a similar amount to 15.50 per cent which will benefit home loan borrowers. The move by ICICI Bank comes within two days of RBI cutting its key lending rate by a surprising 0.50 percent to 8 percent with a view to boost sagging growth.

Meanwhile, country's second largest public sector bank PNB has announced cut in lending rate by 0.25 per cent, a move that will make housing and corporate loans cheaper.

"The bank has decided to decrease the base rate by 25 basis points from 10.75 per cent to 10.50 per cent," Punjab National Bank said in a statement. The base rate is the minimum interest rate below which banks can't lend. With the reduction in rates, likely to be followed by other lenders, housing and corporate loans would become cheaper by at least 0.25 per cent.

Besides, PNB has also decided to slash interest rate on term deposits of less than Rs 1 crore by 0.25-0.50 per cent in select buckets. The new rates will be effective from May 1, the bank said. The decision comes barely two days after the RBI reduced the short-term lending (repo) rate by 0.5 per cent to 8 per cent in its monetary policy on Apri 17. IDBI Bank had announced cut its lending and deposit rates last week.

IDBI Bank has been the first off the block to bring down interest rates on loans and fixed deposits (FDs), following the reduction in policy rates by the Reserve Bank of India (RBI) on Tuesday last.

Other banks, meanwhile, have brought down returns on bulk deposits and certificate of deposit (CD) schemes through which they raise wholesale funds. IDBI Bank's floating rate loans have become cheaper following a 25bps reduction in base rate (to 10.50%) and its prime lending rate (to 15%) with effect from April 20, 2012. The bank has also decided to reduce the retail term deposit rates by 10-50bps in various buckets having maturity of 'six months and above'.

HDFC Bank has said that it will be reducing its term deposit rates in a few weeks and that lending rates will come down almost simultaneously. Dealers in the money market said that interest rates on CDs have crashed in the wake of the 50bps cut in repo rate by RBI on Monday. Mortgage institution HDFC which also raises funds through FDs, has said that it would also take a re-look at its rates if banks were to cut deposit rates.
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Publication:Pakistan & Gulf Economist
Date:Apr 29, 2012
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