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MUMBAI, March 25

BANKS have started cutting lending rates at last. Close on the heels of Central Bank of India taking the lead in announcing a cut in lending and deposit rates last week, Union Bank of India on Monday lowered its prime lending rate (PLR) and deposit rates by 0.25 per cent effective from April 1.

There has been a lot of speculation in the banking circles on whether banks will or will not cut their lending rates. RBI's bias towards a lower interest rate regime has been emphasised time and again but to no avail.

In the mid-term review of the monetary and credit policy in October 2001, the apex bank had reduced the bank rate by 0.50 percentage point and brought it down to 6.50 per cent from 7.0 per cent previously. This has been the lowest bank rate since May 1973.

While a reduction in the bank rate by RBI has always been a cue for banks to cut their lending rates in the past, most banks did not do so this time arguing that lending rates were already at lower levels.

The next signal in this direction, which was the 50 basis point cut in the small savings rate announced in the Union Budget, was also met with a lukewarm response by banks. They took their own time to `take a view' on whether a cut in lending rates at this point would be a feasible proposition.

Bankers contended then that if a cut in PLR were warranted it would be done after the end of this fiscal. However what seems to be a sign of the times is that, banks are no longer waiting for State Bank of India to take the lead.

Meanwhile, Union Bank of India's PLR has been reduced to 11.50 per cent from 11.75 per cent. Interest rates on deposits of less than Rs 15 lakh will stand at 4.75 per cent for a period of 15-45 days. For 46-60 days the rate is now 5.50 per cent and for 61-90 days 5.75 per cent.

For a maturity of 91-179 days the rate is 6.25 per cent; for 180 days to less than a year 6.50 per cent; for one year to less than two years 7.25 per cent; for two years to less than three years 7.50 per cent and for maturities up to three years 8 per cent.

For deposits of Rs 15 lakh and above a higher rate of 0.25 per cent has been given for lower maturity bands up to two years. The bank ascribed the revision in interest rates to the view taken by the Asset Liability Committee on the interest rate scenario in light of the cut in small savings rate in the Budget, the release said.

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