Banks probably cut interest rates by 200 bps or 2%

In the meeting with acting finance minister Pranab Mukherjee country’s large public sector banks chairman gave an indication that banks might further cut interest rate by up to 200 basis points or 2 percentage points depending up on the situation.

State Bank of India (SBI), Punjab National Bank (PNB), UCO Bank and the Oriental Bank of Commerce (OBC) are few of the banks which see the possibility of a further rate cut, given the cost of funds and inflation come down.

Finance secretary Arum Ramanathan also notified that lending rates might come down further as there has been control in deposit rates.

On the other hand Mr Mukherjee, said that there is a need to ensure encourage growth of labor and growth intensive sectors such as infrastructure and real estate to help the country successfully wade through the present global economic crisis.

"We must support the development of those sections, which will immediately boost growth and throw up employment opportunities. In view of contracting global demand, we have to focus on development of domestic demand by primarily stimulating demand in the rural areas and in highly labor-intensive sectors," he said after his first meeting with the chief executive of public sector banks.

Mr Mukherjee held the meeting with the bankers in the background of the third quarter review of the annual monetary policy of the country's central bank -the Reserve Bank of India (RBI). The RBI, in its third quarter review, had stated that there is further scope of rate cuts by the commercial banks as the central bank had taken enough steps to bring down the rates and banks are not passing on the entire benefit to the customers.

After the RBI's suggestion country's second largest bank PNB had announced cut in the prime lending rates by 50 basis points bringing it down to 11.5% -the lowest among all banks. While SBI, announced that it would offer housing loan to 8% and freeze it for one year.

State Bank of India (SBI) chairman O P Bhatt said that the bank is looking towards the possibility of a further rate cut. "There is thinking (on the rate cut)," he said before the meeting with the finance minister. However he did not revealed on how much the rate cut could be.

Earlier SBI had reduced the benchmark PLR by 75 basis points to 12.25 per cent with effect from January 1. Mr Bhatt also said that the large and medium corporate could add up to the non performing assets (NPA) and the bank was keeping a close eye on that.

PNB chairman K C Chakrabarty notified that the bank is open to reduce the lending rates provided the cost of funds comes down further. He, however, said that in the meeting discussion on interest rate was held between FM and the bankers.

UCO Bank chairman S K Goel said that there is possibility for 100 to 200 basis points reduction in interest rates.