HDFC Bank revised lending rate by 25 basis points

HDFC Bank country’s second largest bank among private sector lender announced cut in the benchmark lending rate by 25 basis points to 15.75 per cent.

According to information placed on HDFC bank website the revised benchmark prime lending rate of 15.75 per cent per annum has come into effect from July 20. With the cut in lending rates the fixed deposits rated have also been reduced effective from May 18.

In the past six months, the PLR has been revised by 75 basis points earlier bank had revised PLR in December 2008, when the rate was reduced by 50 basis points to 16 per cent.

The loans given by the private sector banks are mostly rated below PLR, but some of the corporate loans they relate to the benchmark rate.

As there is variation in PLR therefore to study the relevance of PLR in the changed scenario, last month the Reserve Bank formed a six-member working group to study the Benchmark Prime Lending Rate (BPLR) system and suggest a single method for pricing of floating rate loans, which will help in bringing more transparency in fixation of interest rates on housing loans by banks.

The working group is headed by the RBI Executive Director Deepak Mohanty includes J P Morgan India chief economist Jahangir Aziz and Indian Institute of Management (IIM) Ahmedabad Professor as its members.

In addition to them, other members of working group include RBI chief general manager P Vijaya Bhaskar and Janak Raj, advisor-in-charge in the monetary policy department of the central bank and RBI's monetary policy department director Himanshu Joshi, who is a member secretary.

According to RBI release, "The working group may co-opt any other members as special invitees and may consult with all stakeholders".

The group would be placing its report by end-August 2009. In the report the group will give some suggestions for a suitable benchmark for floating rate loans in the retail segment.

Also there will be some recommendation for an appropriate loan pricing system based on international best practices, the release stated. It said the reviewing is being done to make the credit pricing more transparent.