Punjab National Bank cuts lending base rate to 9.15%

Punjab National Bank, one of the large government banks, cuts base lending rate by 20 basis points (bps) to 9.15 percent.

The new base rates will be effective from September 1. The cut has been down from 9.35 percent.

“Bank has reduced Base Rate by 20 BPS from 9.35 percent to 9.15 percent w.e.f. 01.09.2017,” PNB said in a filing on BSE.

One bps is one hundredth of a percentage point.

The Delhi-based bank has also reduced Marginal Cost of Funds Based Lending Rate (MCLR) by 20-25 bps with effect from September 1, 2017.

Its one-year MCLR stands at 8.15 percent and 3-month rates are at 8 percent.

Currently, State Bank of India (SBI), country’s largest bank, has one of the lowest base rates at 9.00 percent, which was reduced in July this year.

SBI’s MCLR rates for one year and three months stand at 8.00 and 7.90 percent, respectively.

The Reserve Bank of India (RBI) reduced the policy repo rate by a cumulative 175 bps during January 2015 to June 2017. In response, banks reduced their weighted average domestic term deposit

rate (WADTDR) by 126 bps during January 2015 to October 2016. The weighted average lending rate (WALR) on fresh rupee loans and outstanding rupee loans declined by 97 bps and 75 bps, respectively, during the same period.

The banking regulator has been consistently nudging banks to reduce lending rates by passing on the key policy rate reductions made previously.

Monetary transmission, however, improved significantly post demonetisation.

"Post demonetisation, the pace of monetary transmission from the policy repo rate to banks’ lending rates accelerated significantly, aided by the increase in the share of low cost current account and saving account (CASA) deposits in bank funding. However, the transmission to actual lending rates was uneven across sectors, reflecting sector-specific credit risk dynamics. Asset quality concerns also appeared to have constrained the banks from passing on the full benefits of rate cuts," RBI said in its Annual Report released on Wednesday.

Though the central bank has also accepted that the transmission of past cumulative cuts in the repo rate or the policy rate to lending rates has not propelled a revival in credit growth as banks, especially public sector banks.