Bank chiefs have finally heard the Finance Minsiter''s call for lower interest rates. After resisting a cut in rates for months, India''s largest public sector bank State bank of India has relented and announced a 25 basis point cut in its prime lending rate, a move that could spark off lower interest rates across the banking sector. SBI has reduced its prime lending rate by 25 bps to 12.5 per cent with effect from February 16.
According to SBI, the decision to cut rates follows an assessment of the current market situation and the comfortable liquidity scenario in the banking sector. The move comes after the Finance Minister urged PSU bank chiefs to try and lower rates to help sustain the growth momentum in the economy. However, banks had expressed their inability to cut rates since market leaders like SBI were holding rates at higher levels.
Following SBI, Bank of India also announced a cut in home loan rates by 25 bps whereas Canara Bank has already reduced home loan rates by 25 bps. Allahabad Bank and Corporation Bank have also announced a similar cut in home loan rates. However, many banks are still reluctant to cut their benchmark rates in order to protect their profitability. Private sector banks like ICICI and HDFC Bank have also stubbornly refused to lower their PLRs to protect their lending margins. This is despite a rebuff from the RBI Governor who says that banks have enough margin to reduce rates without waiting for the RBI to lower rates.
According to SBI, the decision to cut rates follows an assessment of the current market situation and the comfortable liquidity scenario in the banking sector. The move comes after the Finance Minister urged PSU bank chiefs to try and lower rates to help sustain the growth momentum in the economy. However, banks had expressed their inability to cut rates since market leaders like SBI were holding rates at higher levels.
Following SBI, Bank of India also announced a cut in home loan rates by 25 bps whereas Canara Bank has already reduced home loan rates by 25 bps. Allahabad Bank and Corporation Bank have also announced a similar cut in home loan rates. However, many banks are still reluctant to cut their benchmark rates in order to protect their profitability. Private sector banks like ICICI and HDFC Bank have also stubbornly refused to lower their PLRs to protect their lending margins. This is despite a rebuff from the RBI Governor who says that banks have enough margin to reduce rates without waiting for the RBI to lower rates.
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