No cut in lending rates till cost of deposits falls: PNB

Public sector Punjab National Bank (PNB) on Thursday ruled out any reduction in lending rates for now in the wake of high inflation and increased cost of funds.

"Till the cost of deposits come down (and) this is related with inflation," PNB executive director Rakesh Sethi answered when asked if the bank will bring down the interest rate. PNB's cost of funds at present is 5.78%, while its net interest margin is pegged at 3.6%.

He said the bank has already hiked the rate of deposit for one year to 8.75%. In the wake of the slowdown in economy, PNB has also reduced its growth projection for advances to 16% for current fiscal against 24% in last fiscal.

"We are looking at credit growth of 16% against 24% achieved last fiscal because of slowdown (in economic growth)," he said. The total business of the bank is targeted at Rs 8 lakh crore, of which credit will be Rs 3.50 lakh crore for 2012-13.

Sethi said there would be reduction in demand for funds because of lowering of SLR by the Reserve Bank and lower ceiling imposed on bulk deposits. "Demand for funds will reduce due to SLR reduction. Moreover, the RBI's directive of lowering the ceiling of bulk deposits to 15% of total deposits will also reduce demand for funds," he said.

Earlier, bulk deposits used to be 30% of total deposit of banks. PNB's bulk deposits ratio is 22% which would be brought down to 15% by March 2013, he said.

The RBI had cut the statutory liquidity ratio (SLR) - the amount of deposits banks park in government bonds - by one percentage point from 24% to 23% last month.