HDFC Bank Cuts Prime Lending Rates
HDFC Bank India’s second largest private lender announced today that it would lower its Prime Lending Rate (PLR) by 50 basis points in response to the Reserve Bank of India (RBI) cut in key official interest rates by 100 basis points. Separately state owned Union Bank said that it would cut its PLR by 75 basis points leaving it standing at 12.5 per cent.
HDFC Bank said its benchmark prime lending rate (BPLR) will fall to 16 per cent in two stages. A 25 basis point reduction will be effective December 15, and a similar cut will be then be implemented on January 1, 2009.
“The drop in the PLR follows the reduction in the bank’s incremental cost of funds and the significant easing seen recently in the monetary stance and the local currency money markets,” HDFC Bank Executive Director Paresh Sukthankar said in a statement.
Other Government owned banks, including State Bank of India, Bank of Baroda and Uco Bank, have yet to commit to cutting interest rates and most will take a call later this week. HDFC bank is the first private sector bank to cut its PLR. ICICI Bank has cuts its variable mortgage rate by 150 basis points, but the reduction in interest rates is only applicable to new borrowers wanting to take a mortgage not exceeding Rs 2,000,000 or US$ 40,000. Existing customers are still to see any relief or have any cut in official lending rates passed on to them.
Government banks cut lending rates last month after a series of measures undertaken by the RBI whilst private sector lenders declined to do so. On Saturday, immediately after the RBI announced that it was cutting official interest rates ,Yes Bank announced that it would lower its PLR by 50 basis points to 16.5 per cent. An Axis Bank executive said the private sector lender will re-look at lending rates for home loans up to Rs 2000,000 or US$ 40,000 following the proposed initiative by public sector banks.
While state-owned banks lowered their deposit rates at the start of the month, last week, HDFC Bank became the first private bank to follow with a cut of 50 to 225 basis points in deposit rates across various maturities.
Analysts feel that Indian banks will have to cut their deposit rates first before being able to pass on any cut in official lending rates to their borrowers. Indian banks have been offering deposit rates in the double digits and been increasing them for much of the last year in an effort to attract more funding. The RBI has cut interest rates by 250 basis points since the start of its easing cycle, banks have failed to follow suit on their deposits and hence their reluctance to immediately follow reciprocate after a reduction in official interest rates.
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