Union Bank, HDFC Bank cut rates

Banks have started reducing the interest rates following the economic stimulus package announced by the Central government and cut in repo/ reverse repo rates and special financial assistance to housing and SME segments by the RBI.

Banks have started reducing the interest rates following the economic stimulus package announced by the Central government and cut in repo/ reverse repo rates and special financial assistance to housing and SME segments by the Reserve Bank of India (RBI).

State-owned Union Bank of India and private sector lender HDFC Bank have announced reduction of rates by 75 basis points and 50 basis points respectively on Monday. Union Bank effected a further downward revision in its benchmark prime lending rate (BPLR) by 75 bps from 13.25 per cent to 12.50 per cent per annum while HDFC Bank’s 50 basis points cut will be effective in two tranches of 25 bps each, the first from December 15, 2008 and the second from January 1, 2009. HDFC Bank’s new PLR will be 16 per cent. UBI’s revised rate is effective from December 8, 2008.

The asset liability committee (ALCO) of other banks, including the country’s largest lender SBI and Bank of Baroda, are meeting this week to reduce rates. This is the second round of rate cuts by PSU banks in the last three months. “Our bank’s ALCO will be meeting on Wednesday to take a call on the interest rates,”’ a senior SBI official said.

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“The drop in the BPLR is pursuant to reduction in the banks incremental cost of funds and the significant easing seen recently in the monetary stands and the local currency money markets,” HDFC Bank executive director Paresh Sukthankar said. On Saturday, private sector lender Yes Bank had announced a 0.5 per cent reduction in its PLR to 16.5 per cent.

Significantly, private banks have started reducing deposit rates as well. HDFC Bank cut deposit rates on some of its flagship products on Saturday, with the reduction being steep for short maturities. The rates for deposits with a maturity of six months and 15 days have been reduced from 10.5 per cent to 8.25 per cent. For nine months and 15 days, the rates are from 10.5 to 9 per cent while for one year and 15 days, they are now 10 from 10.5 per cent earlier. The bank has also slashed the rates for two years and 15 days from 10.5 to 9.5 per cent, making it the first private bank to cut deposit rates after some of the PSU banks cut rates a couple of weeks before. HDFC Bank has also slashed rates on its bulk deposits.

ICICI Bank is yet to take a final decision on lending and deposit rate cuts. However, it reduced rates for home loan below Rs 20 lakh last week. Axis Bank is carrying out a review and may take a decision soon.