The state-owned Punjab National Bank (PNB) finds it difficult to lower lending rates any further if the government did not slash interest rates on existing deposits. PNB chairperson and Managing Director K.C. Chakrabarty mentioned, on the sidelines of the annual conference of industry lobby Confederation of Indian Industry (CII), that the Reserve Bank of India (RBI) is not reducing interest on savings bank deposits. The banks will be able to reduce lending rates and pass on the benefits to consumers only when deposit rates are reduced and new deposits come in at a lower rate.

 

In reference to the slowdown and the liquidity crunch, Chakrabarty said, "There is a slowdown in new deposits. The liquidity is there but at what cost that liquidity is acquired has a bearing on interest rates. If you do not give me deposits, how will I lend?". He also asked other major banks to reduce lending rates stating that their prime lending rate is already 75 basis points lower than the largest bank in the country and 300 basis points lower than the second largest bank.

 

Regarding why the steadily dropping inflation rate did not prompt more reduction in lending rates, Chakrabarty told that Inflation has come down, but it doesn't have direct influence on interest rates. Deposits rates are required to come down. The interest rate charged by banks on short term loans to customers, the prime lending rate of PNB stands at 11.5 percent.