Indian Banks Association To Meet And Decide On Prime Lending Rates
State owned banks are set to finalise plans for a new interest rate regime for mortgages with a value of up to Rs 2,000,000 or US$ 40,000 as part of a Government drive to boost credit flow to the housing sector and stimulate the property market. Public sector lenders are also considering an interest rate reduction on loans made to small and medium enterprises, though most are yet to commit to a reduction in Benchmark Prime Lending Rates (BPLR).
The Business Standard reports citing an unnamed source that the Indian Banks’ Association is scheduled to meet in New Delhi on Friday in order to decide an interest rate cap on mortgages of up to Rs 500,000 or US$ 10,000 and on a separate ceiling on home loans of between Rs 500,000 to Rs 2,000,000 (US$ 10,000-40,000). The industry lobby then intends to present its proposals to the Finance Ministry and start implementing the scheme over the next few days.
Currently State owned lenders are not unanimous in their view that BPLR’s should be cut, though the government is pushing for lower interest rates after the RBI reduced key official short term interest rates on Saturday.
“If the BPLR is cut, nearly 60 per cent of the benefit goes to the corporate sector, while SMEs and retail customers are smaller beneficiaries. With the Lok Sabha elections round the corner, the government is also more focused on ensuring that the benefits accrue to SMEs and retail customers,” one banker told the BS.
Analysts say that the cost of funding has to fall first before banks can agree to reduce their BPLR’s, for much of the last year most lenders have been tightening interest rates they pay on their deposits, and those rates will have to be cut before rate cuts for borrowers can be implemented properly.
After the Reserve Bank of India announced its latest monetary policy measures on Saturday, including a 100 basis point reduction in the Repo and Reverse Repo Rates, only three lenders, HDFC Bank, Union Bank of India and Yes Bank lowered their prime lending rates. Whilst the State Bank of India’s asset-liability committee has met, it has yet to take a call on reducing interest rates.
ICICI Bank, the country’s second-largest lender is still deliberating whether it needs to lower lending rates. After an aggressive battle to capture market share over the last few years, ICICI Bank has lowered its credit growth target for the first time this year and is yet to lower its deposit rates, though most large players have decreased the rates at the start of the month.
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