Public sectors banks are virtually competing with each other to see who offers the lowest interest rates. Delhi-based Punjab National Bank (PNB) on Monday announced a 50 basis points (bps) cut in its prime lending rate (PLR) to 12%, effective from January 1, making it the lowest PLR in the country.
This is the third time PNB has slashed lending rate since October. The bank also cut its peak deposit rates by 100 bps to 8.5% in the one-year to less than three-year tenure.
The rate cut comes just a week after some of its public sector peers reduced their prime lending rates and exactly a couple of weeks after public sector banks announced a special package on home loans and small and medium enterprises.
PNB was the first to cut its PLR by 1% to 12.5% effective December 1. KC
Chakrabarty, CMD said the latest cut has factored in some more interest rate cuts by the Reserve Bank of India.
“There is a 50% chance of another 50-100 bps cut in the repo or cash reserve ratio adding that this cut by PNB will create pressure on other public sector banks to cut rates further. The bank’s public sector rival, State Bank of India had revised its prime lending rate downwards, by 75 bps to 12.25% effective January 1.
However, Chakrabarty, brushed aside suggestions of competition with SBI. “SBI is my eldest brother,” he said.
The sharp drop in inflation had forced the bank’s hand in cutting rates this time, Chakrabarty said. Inflation is down at 6.61% after touching a 16-year high in August.
Chakrabarty said that despite the cut in lending rates he does not expect his net interest margins to be under pressure. “Our margins will be around 3.4% to 3.5%,” he said.
PNB’s credit growth is strong at 34.4% year on year so far. The bank expects it to be maintained at 30% for the year. Chakrabarty said the bank’s endeavour is to cut PLR aggressively to 10% and ensure that “nobody gets money below 10%.”
