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SBI cut prime lending rate by 25 bps Two of the country's largest banks, State Bank of India (SBI) and Canara Bank, today cut their benchmark prime lending rate (PLR) by 25 basis points to stoke demand for credit, which has slowed more than seven percentage points over the financial year so far. While SBI cut its PLR to 12.5 per cent earlier in the day, Canara Bank reduced it to 13 per cent in a late evening announcement. The new lending rates will be effective from February 16. The move by the two banks to reduce their benchmark lending rate comes a day ahead of a pre-Budget meeting of the chairmen of public sector banks with Finance Minister P Chidambaram in New Delhi. In his meeting with bank chiefs in January, Chidambaram had indicated that they should consider a reduction in deposit and lending rates. Most state-owned banks have maintained PLR in the range of 12.75 to 13.25 per cent. Although banks usually lend to large and reputed corporate borrowers at below these rates, cutting PLR is a strong indicator of a softer interest rate regime after a year in which high lending rates all round are widely believed to have kept economic growth in 2007-08 to below 9 per cent for the first time in two years. Other banks also cut their lending rates. Bank of India (BoI) cut the interest rate on various consumer loans by 250 basis points today. The effective rate now will be 13.25 per cent. BoI has also reduced the rate for educational loans by 100 basis points to 11.5 per cent and home loan rate by 25 basis points. Asked why the PLR was maintained at the present level (13.25 per cent), BoI Chairman and MD T S Narayanasami said while rates are expected to be soften, the bank needs to do an in-depth review of credit portfolio for a revision in the PLR. Meanwhile, Bank of Baroda and Indian Overseas Bank have also signalled a downward revision in deposit and lending rates. BoB officials said deposits raised last year will come up for redemption in this month. The review of rates will take place for both deposits and lending. IOB Chairman and MD SA Bhat said the Chennai-based bank is planning to cut its lending rates in the next two weeks. He said the state-owned bank may also look to cut deposit rates by March 31. An ICICI Bank spokesperson said that the private sector bank will continue to watch the impact on its cost of funds and take a suitable decision. A senior SBI official said, "We have taken the decision against the backdrop of softening of interest rates (as seen in the yields). This cut will provide benefit to clients across the board and also push credit demand in the fourth quarter ending March 2008." Year-on-year credit growth has slowed to 22.6 per cent as of January 25, 2008 from 29.8 per cent a year ago. Asked about the impact on interest margins, the SBI official said: "The impact on net interest margin will be negligible." Public sector banks like Allahabad Bank, Corporation Bank and housing finance major HDFC have already cut their lending rates.