MUMBAI, June 27: Commercial banks have started cutting their prime lending rates (PLR) following the Reserve Bank decision to reduce the bank rate from 11 per cent to 10 per cent. Central Bank of India and Hongkong Bank have taken the lead in slashing their PLR.

While Central Bank of India (CBI) has reduced its PLR (the rate at which banks lend to blue-chip companies) by 50 basis points to 14 per cent with effect from July 1, Hongkong Bank has reduced its PLR by 150 basis points from 16 per cent to 14.50 per cent.

This is for the first time that the PLR of a foreign bank has come down to the level of public sector banks. Banks like Corporation Bank, State Bank of India, Bank of Baroda, Bank of India, Indian Bank and Union Bank of India are expected to reduce their PLR from 14 per cent to 13.50-13 per cent. PLR of most other PSU banks which are now at 14.50 per cent are likely to be cut by half to one percentage point.

Central Bank has also revised the interest rates on its deposits. While interest rates on deposits between 30-45 days is at 6 per cent, deposits above 3 years will be offered 11 per cent interest. The bank has decided to slash the interest rates on deposits between 1-3 years by only 50 basis points since the maximum chunk of its deposits are accounted for by deposits of this tenure.

Bank of Baroda is likely to reduce its PLR by 50 basis points from 14 per cent to 13.50 per cent when the board of directors meet in the next few days. Bank of Baroda has however revised its interest rates on deposits below one year. While deposits at the lower end will be paid 6 per cent interest, at the higher end they will be paid 8 per cent. The bank also plans to cut the interest rate on deposits of up to 5 years from 12 per cent to 11.50 per cent. Dena Bank whose PLR is currently at 14.50 per cent is likely to take a decision on the matter soon. Bank of India is also likely to offer an interest rate of 6 per cent on deposits between 30-60 days.

Between October 18, 1994 and February 13, 1995, Hongkong Bank's PLR was its lowest at 14 per cent. With today's (Friday) revision, the bank's PLR is at the same level as other PSU banks like Dena Bank.

Hongkong Bank has also reduced the interest rates on its deposits. Deposits over one year but less than two years will now be offered 9 per cent against 10 per cent earlier, while deposits with maturities of more than four years and up to five years will be offered 10.50 per cent against 11 per cent earlier.

The revised interest rates of Hongkong Bank and CBI will definitely bring their spreads under pressure."The lowering of the bank rate by one per cent by the Reserve Bank is a clear signal of the need for lower interest rates in the market place," said D D J John, chief executive officer of Hongkong Bank in India.

"The reduction in the interest rates in the market will, we hope, translate into higher credit off-take which will enable the economy to exceed targeted growth rates", he added.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.