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Banks will not cut PLR

Banks are reviewing their decision to cut PLR due to a sharp rise in inflation

Apnaloan.com Research Bureau

12 Apr 2008

Banks that had cut their prime lending rates (PLR) on cues from the government are reviewing their decision due to a sharp rise in inflation.

A host of public sector banks had cut interest rates earlier this year following an advisory from the Finance Minister in January.

State Bank of India (SBI) had cut its benchmark prime lending rate (BPLR) in two tranches by 50 basis points to 12.25 per cent.

As reported by Business Standard, SBI Chairman O P Bhatt said, the bank may have to reverse the rate cut as they will be out of sync with the market and hurt them. He also said that the bank is looking at the monetary policy and no firm decision has been taken as yet.

Punjab National Bank (PNB) reduced its BPLR from 13 per cent to 12.50 per cent last month. As reported by Business Standard, PNB Chairman and Managing Director KC Chakrabarty said, that rates will definitely harden. It's a matter of time and that the bank is waiting for signals.

Bank of India, which had also pared rates by 50 basis points, said the signals point to hardening of rates, but a final decision will be taken after the monetary policy on April 29.

As reported by Business Standard, IDBI Chairman and Managing Director Yogesh Agarwal said, that banks which had reduced rates earlier this year, may have to review their decision due to higher inflation. However IDBI decided to put a hold to its decision to pare its BPLR from April.

With inflation reaching a three-and-a-half year high, interest rates are expected to harden. RBI is expected to announce some measures in the credit policy scheduled for April, though there is a slowdown in credit demand.

During 2007-08, bank credit grew 21.6 per cent compared with 28.1 per cent in the previous year.

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