HDFC Bank cuts PLR by 25 bps

The countrys second largest private sector lender HDFC Bank today slashed its benchmark prime lending rate PLR by 25 basis points to 15.75 per cent. PLR has been reduced to 15.75 per cent per annum with effect from July 20,HDFC Bank said on its website.

The cut in lending rate follows the reduction in the fixed deposits rate effective from May 18. In the past six months,the BPLRhas been reduced by 75 basis points. The bank last reduced its PLR in December 2008,when the rate was brought down by 50 basis points to 16 per cent. Private sector lenders mostly give loans below PLR. However,some of the corporate loans are linked to the benchmark rate.

Thus,to study the relevance of PLR in the changed scenario,the Reserve Bank last month constituted six-member working group to review the PLR system and suggest a mechanism for pricing of floating rate loans,a move that will improve transparency in fixation of interest rates on housing loans by banks.

The working group,chaired by RBI executive director Deepak Mohanty comprises J P Morgan India chief economist Jahangir Aziz and Indian Institute of Management IIM Ahmedabad Professor as its members.

The group is expected to submit its report by end-August 2009. It will suggest a suitable benchmark for floating rate loans in the retail segment.