Bank loans become cheaper

For the second time in one-and-a-half-months, India's third largest bank lender, private sector Axis Bank, has reduced its benchmark prime lending rate by 50 basis points, bringing it to 14.75 per cent. The revision will take effect from Friday.

Bapi Munshi, president, treasury, at Axis said the rate cut was in line with the current liquidity and market environment.

"Our cost of funds for the fourth quarter of 2008-09 was better than the third quarter," he said. "We expect to do even better in the current quarter and based on those expectations, we have decided to pass on the benefit to our customers," Munshi added.

Prior to this, Axis Bank had revised its BPLR by 50 bps, from 15.75 per cent to 15.25 per cent, from April 1.

Private and foreign banks slowed their credit growth in 2008-09 and have been criticised for not passing on the benefit of lower policy rates to customers.

However, some have now taken a cue from the central bank's latest round of rate cuts. On April 21, RBI had announced a 25 bps cut in the repo rate, the one at which it lends to banks, as well as a 25 bps cut in the reverse repo rate, at which it mops liquidity.

Since then, India's largest private sector lender ICICI Bank and foreign lender Citibank have pared their basic rates. More recently, public sector lender Punjab National Bank reduced it BPLR by 50 bps to 11 per cent effective from May 1.

South India-based private sector Lakshmi Vilas Bank also reduced its BPLR by 25 bps to 15 per cent effective from May 4.

A few days earlier, O P Bhatt, chairman of India's largest public sector lender, State Bank of India, said there should be some downward revision in lending as well as deposit rates in the new financial year. "There are enough indicators available on this. We have to decide the time and extent of the cut," Bhatt said.