As most major banks and the Indian Banks Association do not agree with the further scope for rate cut, public lender Punjab National Bank (PNB) admits that the interest rates can be reduced.

The bank is expected to bring down the interest rate by 50 to 100 basis points. "There is headroom for another 50 basis points cut," said K C Chakrabarty, Chairman and Managing Director of PNB.

Further he added, "If I can bring down deposit rates, there is case for 100 basis points cut. We will review our interest rates in the next meeting of the Alco (asset-liability committee) later this month."

The bank views a scope for rate cut after the RBI said that there are shortage in the manner in which interest rates on loans are fixed.

The annual credit policy by RBI also expresses a need for more transparent benchmark prime lending rate (BPLR) system. The central bank plans to set up a working committee to review the current BPLR system.

Announcing the policy report, RBI Governor, D Subbarao said, "The system of BPLR has evolved in such a manner that it has lost its relevance as a meaningful reference rate as bulk of loans is advanced below BPLR."

The present BPLR system will be reviewed by a working group that would suggest changes required for making the credit policy more transparent. The working group is expected to present the report by the end of August.

Arun Kaul, Treasurer at PNB said, "While many banks have reduced interest rates to some extent since October 2008, most of them extend loans to bigger customers at rates that are much below their existing BPLR and that has prompted RBI to review the system."