Banks follow FM suggestions slashes loan rates

Finance Minister P Chidambaram in a meeting with the chiefs of the banks had asked banks to boost loans to consumers for home and consumer durable purchases at an “affordable cost”. The major public-sector banks, led by state-owned State Bank of India, have slashed lending rates across the board. This one pre-budget move of the banks can bring cheers to the consumers.

Four public sector banks, led by SBI, have cut their prime lending rates (PLR) by 0.25-0.50 per cent. This will have a descending impact on all categories of borrowers, from corporates to individuals, as the base for all loans is set according to PLR. The decrease in rate is likely to bring down the net purchase cost (including interest charges) for everything from a house to cars and TVs.

“There is a feeling that adequate credit is not being provided to the housing sector and the consumer durables sector,” Chidambaram had told bank chiefs last week.

He asked banks to "pay attention" to provide sufficient credit to these two sectors as they are "drivers of the economy".

Although banking regulator Reserve Bank of India had abstained from any further moves to cut rates on fears of increase in inflation, banks themselves find themselves saturated with funds.

Thanks to a unpredictable stock market, and the tailwind provided by the 2-2.5 per cent interest rate hike last year, which had also led to corresponding increases in interests banks paid on fixed deposits, there is no shortage of funds -- liquidity in banker speak -- in the system.

According to data released by the Indian Banks Association, on a year-on-year basis, there has been growth in by 29.5 per cent till January 25, as against the 23.5 per cent last year. At the same time, credit off take grew at a fragment over 22 per cent, compared to the near-30 per cent growth the previous year.

From SBI side this is the second cut in less than 10 days. The bank had announced a quarter per cent cut on February 11, which kicked in on February 16.

"The benchmark PLR is revised downward by 0.25 percentage point from 12.50 per cent to 12.25 per cent with effect from February 27," SBI informed the BSE in its notification.

Along with SBI, Bank of India and Union Bank also announced cut their prime rates by 0.5 percentage points to 12.75 per cent on Wednesday. Bangalore-based Canara Bank also slashed its rate by 0.25 percentage points to 12.75 per cent.

In home loan category major HDFC having already reduced its prime rate by 0.25 percentage points effective February 1, and PNB Housing Finance slashed rates by 0.5 per cent, flagging real estate and automobile sectors are set to witness a growth in demand.