Wednesday, June 17, 2009

Banks likely to reduce rates over the next few weeks

After the finance minister Pranab Mukherjee direction to the banks to cut interest rates they are likely to cut interest rates by 100-150 basis points over the next few weeks to boost credit growth. However the finance minister had already directed public sector banks to cut lending rates further. Although the Reserve Bank of India had reduced its benchmark rates, Mukherjee said this is not being reflected in loans.

While according to most bankers, including RBI deputy governor K.C. Chakrabarty, there will be no drastic reduction in interest rates in the long term, although in the short term they will remain benevolent.

Alok K. Misra, chairman and managing director of the Oriental Bank of Commerce told The Telegraph, “Interest rates are doing a downward spiral. We will take a call on the quantum of rate cut by the end of June when the asset liability committee meets.”

Most of the PSU banks are lending at 11.75-12.25 per cent but Delhi-based Punjab National Bank is lending at the lowest rate of 11 per cent, while the private banks such as ICICI Bank, HDFC Bank and Axis Bank is lending at 12.75-16 per cent.

Rana Kapoor, managing director of Yes Bank informed that his bank will reduce its benchmark lending rate by 50 basis points from July. Largely banks might reduce rates by 1-1.5 per cent over the next few weeks.

Last week after the meeting of bank chiefs and finance minister the State Bank of India said there is scope for a 25-basis point cut.

According to senior bankers the softening of interest rates can help in reviving the drooping demand in credit growth.

Canara Bank will be announcing a cut in its prime lending rates by June end has reworked its loan growth target to around 21-22 per cent during the current fiscal as compared with 29 per cent in the last fiscal. Canara Bank chairman A.C. Mahajan pointed out, “While there is sufficient liquidity in the system, the credit off take has not been very high”.

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