Soon Bangalore-based Canara Bank and Delhi-based Oriental Bank of Commerce (OBC) will be reducing lending rates. By the end of this month Canara Bank will be reviewing the present lending rates and OBC will be deciding early next month.
While speaking on the sidelines of a news conference in the New Delhi Canara Bank chairman and managing director A C Mahajan told reporters, “Interest rates are moving southwards and likely to come down further. Our asset liability committee (Alco) is meeting at the end of this month and we would be taking a call on further rate cut thereafter”.
Alok Mishra, chairman and managing director of OBC agreed with Mahajan’s views. Mishra stated, “Rates are definitely moving downwards. Our Alco would be meeting in the first week of next month and rates may soften after the meeting”.
But both A C Mahajan and Alok Mishra remained reserved regarding the possible quantum of revision in the interest rates, while admitting that cost of funds is still a cause of concern. Mahajan added, “Cost of funds are still high and it remains the biggest hurdle in the way of reducing interest rates”.
Currently the prime lending rates (PLR) of both Canara Bank and OBC are 12 per cent.
In the recent meeting with chiefs of all the public sector banks finance minister Pranab Mukerjee had suggested them to avail the benefit of various monetary measures taken by RBI and should pass them on to customers.
After the meeting with the finance minister, most banks have given indications that they will think of revising interest rates. Banks have also indicated that to reduce the lending rates, deposits rates have to be reduced.
Meanwhile the State Bank of India, the country’s largest commercial bank, has already reduced deposits rates by 25 basis points on all maturities.
On the other hand Canara Bank is ready to acquire a bank in India in order to increase its size and presence. Mahajan stated, “Consolidation is the only way to grow and we are willing to takeover (a bank). If there is any good opportunity, we would grab it with both hands”.
The statement supposes to be significant as finance minister Pranab Mukherjee in a meeting with senior bankers had said, that the government would support consolidation provided the banks have to take the initiative. Apart from SBI, no major bank has shown any liking for consolidation in the banking industry.
Last year State Bank of Saurashtra had merged with SBI and a process for the remaining six subsidiaries would be finalized by July-end.
The newly-appointed deputy governor of RBI, K C Chakrabarty, had firmly pointed out that time is not over for consolidation in the banking industry. “Banks can grow on their own for the time being and the right time for moving towards consolidation would come only after 3-4 years.”