State-run Union Bank of India has indicated a reduction in the lending rates by July, when it expects the related cost of funds to lower.

MV Nair, chairman and managing director, Union Bank of India, said, "Rate cuts are linked to the cost of funds and for our bank the cost of funds starts coming down in July. So, we would take a call on rate cuts in July."

Commenting on the credit availability, Nair said, "The IIP numbers are encouraging. There are initial signs of recovery. Public sector transactions are already high and it should further improve."

The current benchmark prime lending rate of the bank is 12 percent.

The bank has set a credit growth of 25 percent for the current fiscal as against the 15.5 percent for FY 08-09. The bank has already extended loans worth Rs 180 billion. It is expected that the demand for loans is yet to gear up.

Earlier this month, the Union Finance Minister, Pranab Mukherjee in a meeting with the top executives of public sector banks (PSBs) urged the bankers to pare the lending rates further.