Joel Rebello

Mumbai: Banks seem to be in such a rush to bump up credit growth in the last month of the financial year that they have cut their benchmark prime lending rate (BPLR) for a second time by 25 basis points in a matter of a week.

Canara Bank, which had reduced its BPLR by 25 bps last week, announced a fresh cut of similar proportions on Wednesday. Ditto State Bank of India.

Canara Bank chairman and managing director M B N Rao later told Newswire 18 the reduction came because there is enough liquidity in the system.

“We felt interest rates could come down more. This will enable us to rationalise our deposit cost structure,” he said. Canara’s BPLR now stands at 12.75% with effect from Monday, down from 13.25% just 15 days ago.

SBI cut its BPLR by 25 basis points to 12.25% effective Wednesday.

Chaitra Bhat, banking analyst with Prime Broking, said the cuts indicate banks want to “fuel credit growth.” Another analyst with a foreign broking house,who did not wish to be named, said this indicates that last week’s 25 basis points cut by banks could not to much to increase credit offtake.

“Credit growth at 22% is not picking up and I think banks realised that even to maintain these levels they would have to cut rates further,” the analyst said. Banks are hoping that a reduction in BPLR will help in generating demand for loans, even it means a squeeze in their net interest margins.

Analysts calculate that for every 100 bps cut in BPLR, SBI’s net interest margins would crimp by 30-40 basis points. Vaibhav Agarwal, research analyst at Angel Broking had told last week that mid-size public sector banks could see a compression of 10-20 basis points on margins. Already mid-sized banks are feeling the pinch.

On Wednesday state-owned Union Bank of India also cut its BPLR by 50 bps from to 12.75% from 13.25% effective February 21. Bank of India also cut rates by 50 basis points.

Later this week other public banks like IDBI and Punjab National Bank will also meet to cut rates. Chances are these banks will also cut rates by a minimum of 50 basis points.

Analysts say the large lending rate cuts mean that deposit rates will come down. Sejal Doshi,CEO, Finquest Securities, expects banks to cut deposit rate after March.

“March has traditionally been the month when banks mobilise deposits so rates are higher. I think they will wait till April to cut deposit rates,” he said.

Source : DNA