Rate Cut: SBI, Canara, Union Bank, Bank of India: What’s happening?

It’s the government backed PSU banks that have again taken the lead to fight it out in the open market competition. The state run banks have gone for a 2nd round of rate cut giving major relief to borrowers. It doesn’t appear to be the problems of the slowdown of economy, but more to be the instructions from the government, otherwise, such a synchronized move when 4 PSU banks simultaneously go for a rate cut at the same time is not just a mere coincidence.

As per the news:
State Bank of India, Canara Bank, Union Bank of India and Bank of India — on Wednesday announced a cut in their benchmark prime lending (PLR) rates. For SBI and Canara, this is the second cut in less than a fortnight.
RBI, keeps on giving the reference to inflation and has been avoiding the rate cut. But this appears to be an indirect attempt to ask PSU banks to cut the rates. But as far as my knowledge goes, this kind of strategy may not work well. The consumer confidence is low, there have been less spending, especially after seeing what is going on in the US and UK. The interest rate differential between US & India is too high, almost around 5%.

Such indirect moves of forcing PSU banks to cut rates MAY keep up the loan markets and maintain the borrowing levels, but it will definitely not bring up the spending levels of the customers, as was the case during the past few years. Probably that is the reason that the second largest bank, and the largest private bank of India, ICICI Bank has not yet gone for a rate cut.

The biggest player, SBI, has announced a 25-basis point cut in the SBI advance rate (SBAR) to 12.25%. The rate cut will come into effect from February 27. Barely a week ago, SBI had cut its PLR by 25 bps to 12.50%. SBI, which is taking the lead, met heads of some of the other nationalised banks, including Canara Bank, Punjab National Bank, Bank of Baroda, Union Bank and Bank of India, to discuss a possible cut.
Bank of India too lowered its PLR by 50 bps to 12.75%, a week after it lowered rates on vehicle loans by 50 bps, educational loans by 100 bps and consumer loans by 250 bps. The new rate cut would lower these rates by another 50 basis points.

The new rates would come into effect from Feb 21 for Union Bank of India and Bank of India. Canara Bank has also cut its prime lending rate by 25 basis points, to 12.75%, effective from Feb 25.

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