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PUBLIC SECTOR BANKS MAY CUT LENDING RATES FOR RETAIL BORROWERS, NO RELIEF FOR OTHERS


Several state-run lenders from Allahabad Bank to Union Bank of India may reduce lending rates on retail or SME loans to a higher extent and avoid cutting lending rates uniformly across the board, as the government wants them to focus more on these customer segments.

Top executives with these banks said they are weighing various options and a clearer picture will emerge in the next couple of days.

The government - the biggest owner of state-run lenders - wants bank chief executives to review lending rates with specific focus on retail customersbecause for many of them, retail loans are costlier than even that of private lenders.

Finance secretary DK Mittal had raised this issue at a meeting with top bankers days before Reserve Bank of India's annual policy statement. "We are examining all possibilities.

As we like to grow our retail lending business, we may go for reducing lending rates for certain borrower segments," Uco Bank chairman and managing director Arun Kaul told ET. "But I am not ruling out abase rate cut."

Base rate is the minimum lending rate and banks fix varied spreads over base rate for different loan products, depending on the cost and marketing focus.

Union Bank of India, which aims to double its retail loan share in the next 3-4 years, may follow a similar strategy. "Making retail loans cheaper makes sense as we plan to grow our retail book," the bank's new head Debabrata Sarkar said. Union Bank's retail loans account for just about 10% of total advances.

These banks will have the option of reducing the base rate marginally and then tweak the spread over the benchmark rate to pass on the benefit to specific customer segments.

Banking analysts said State Bank of India, which has the lowest base rate at 10% among government banks since August last year, does not have much headroom to reduce it. "I don't expect SBI to reduce base rate," a senior executive of a competing bank said. "Deposit rates are still high.

Banks would prefer to realign their deposit rates with the market scenario before taking the rate cut call," CARE Ratings managing director and chief executive DR Dogra said.

Following the government order on lending rates, at least five state-run lenders have reduced the base rate with Bank of Baroda announcing a 25-basis point cut in the base rate to 10.50% on Friday.

IDBI Bank was the first to make a 25 basis-point base rate cut, Punjab National Bank and Syndicate Bank followed suit. All these three have a base rate at 10.5% now. Bank of Maharashtra cut its base rate by a mere 10 bps to 10.50% to match them.

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