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Home > Business > Business Headline > Report

Banks may put off rate cuts

BS Banking Bureau in Mumbai | March 03, 2003 14:12 IST

Banks may wait for a bank rate cut by the Reserve Bank of India to bring down their prime lending rates.

Most bank CEOs contacted by the Business Standard said they would take a look at the situation over the next few days but nobody said a rate cut was certain.

Bank of Baroda chief P S Shenoy said he had the "inclination" for a rate cut but the ultimate decision would be taken by the bank's asset-liability committee during the week.

The Budget has put pressure on banks to cut their lending rates to the small and medium sector substantially.

The banks have been asked not to charge rates over 2 per cent of their prime lending rates to this segment. This will bring down the lending rates to this segment substantially, from 16-17 per cent to 12.5-13.5 per cent.

"The half a percentage point cut in the savings bank account rate (from 4 per cent to 3.5 per cent) to some extent can offset the cut in small lending rates. But as of now there is no justification in cutting the PLR. We can only do that if the Reserve Bank cuts the bank rate," said a bank chairman under condition of anonymity.

In other words, the industry is not interpreting the cut in repo rate and savings account rate as a signal to cut the PLR.

Moreover, no bank wants to take a hit on its interest income in the last month of the fiscal. "A cut in PLR can happen in April," said another senior banker.

The RBI is expected the cut the bank rate in its April credit policy. At present, the bank rate is pegged at 6.25 per cent - a 125 basis points higher than the repo rate.


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