Public sector banks spring a surprise, pare rates again

Mumbai: Heeding the finance minster’s call for an interest rate cut to boost the slowing credit growth, large public sector banks, including the country’s biggest lender State Bank of India, went for a surprise second round of rate cuts ranging between 25 and 50 basis points. Rate revision: The move comes days after a meeting of banks called by SBI chief O.P. Bhatt to build a consensus on interest rates.

State Bank of India, which last week convened a meet of CEOs of large public sector banks to root for a revision in interest rates, cut its prime lending rate for the second time by 25 basis points, or 0.25%, to 12.25% from 12.50%, with effect from February 27. Canara Bank, the country’s third largest public sector bank, also cut its interest rate by 25 basis points to 12.75% with effect from 25 February. Both banks had cut their interest rates by 25 basis points each on 16 February.

With Wednesday’s rate cut, both have slashed their interest rates by 50 basis points each. Bank of India and Union Bank of India, two other large public sector banks, on the other hand, decided to go with a sharp 50 basis points cut at one go and revised their prime lending rates downwards to 12.75%, both effective 21 February. Among the large public sector banks, Punjab National Bank and Bank of Baroda are yet to cut their prime lending rates.

CEOs of these two banks were not immediately available for comments. Bank of Baroda chairman and managing director A.K. Khandelwal has recently said the asset liability committee of the bank will meet soon to review the situation. The prime lending rate is a benchmark rate and the actual interest rate charged by banks depends on the rating of borrowers. Banks have their own internal credit rating system for firms that wish to borrow money.