25bps BPLR cuts by HDFC Bank

HDFC Bank, The country's second largest private sector lender slashed level prime lending rate (BPLR) by 25 basis points to 15.75% per annum with effect from July 20. A senior bank official said the HDFC bank has cut the lending rate as liquidity condition has improved substantially in the last couple of months. The bank had also reduced its fixed deposits rates effective from June 19 by half a percentage point, indicative of better liquidity circumstances.

This was the second cut in BPLR by the bank, In the past six months. in total, it has cut its BPLR by 75 basis points since December 2008. This rate cut shows that easy liquidity condition persist despite government has increased borrowing target in the first quarter to 2.97 lakh crore. Earlier, State Bank of India and ICICI Bank had expressed apprehension that huge government borrowing requirements may push the interest rates up.

On the other hand, this BPLR cut by HDFC Bank will not affect the lending rates of the bank much as it gives only 10% to 15% of the total loan at the rates linked to BPLR. All the retail loans like personal loans and auto loans are not linked to BPLR and are offered at fixed Deposits rate. So, this cut in BPLR will not benefit existing players.

However, some of the Business loans are linked to the benchmark rate. As the BPLR has lost its relevance in the changed scenario, RBI had constituted a six-member working group last month to review the BPLR system and suggest a mechanism for pricing of floating rate loans, a move that will improve transparency in fixation of home loan interest rates on housing loans by banks.