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October 24, 2001
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Banks in no hurry to cut lending rate

Though the decks seem to have been cleared for a cut in prime lending rate by commercial banks with the revision in the bank rate and the cash reserve ratio downwards, bankers are ruling out an immediate revision in their lending rate.

The Reserve Bank of India in the mid-term review of Credit & Monetary Policy has effected a half per cent cut in bank rate and a 2 per cent cut in CRR in phases, thereby injecting an additional liquidity of around Rs 80 billion in the system. However, unless banks' deposit rates are revised downward, any reduction in lending rates will have bearing on the profitability margins of banks, said Corporation Bank chairman K Cherian Varghese.

Varghese said that it seemed difficult for now to cut down the PLR without a downward revision in the deposit rates. ''unless the deposit rates are brought down, the possibility of a cut in PLR is remote,'' he said.

He claimed that the current PLR of Corporation Bank is the lowest at 11.5 per cent and an immediate revision of rate cut is also ruled out.

According to Varghese even without reduction in the PLR the banks can make funds available at sub-PLR rates as the RBI has issued guidelines in this regard providing freedom to banks to offer credit at sub-PLR rate.

Corporation Bank has already offered loans worth about Rs 9 billion at sub-PLR rate during the first half of the year ending September 30, 2001, he said.

Zarir Cama, chief executive officer of Hongkong and Shanghai Banking Corporation also shares the same viewpoint and told that the possibility of an immediate review of interest rate structure by the bank was miniscule. "We are in no rush to go for a PLR cut," Cama said, and added that unless some signs of better credit offtake emerge, there is less possibility of any cut in PLR.

However, any final decision on the issue would require a review of the current market situation, he added. Cama has complimented the RBI governor for a forward-looking policy, which according to him is mainly aimed at structural reforms in the banking sector.

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