Karur Vysya Bank Shares Rose 4% Over Cut In Lending Rate. Should You Buy?

The shares of Karur Vysya Bank (KVB) jumped over 4 per cent on Thursday after the private sector lender said it will slash its base rate and benchmark prime lending rate to 7.75 per cent and 12.75 per cent, respectively, with effect from December 15, 2021.

The lender will cut its base rate by 0.25 per cent to 7.75 per cent. It will also revise downwards the benchmark prime lending rate (BPLR) by a similar margin to 12.75 per cent.

"We advise that the base rate and BPLR of the bank would be revised with effect from December 15, 2021," KVB said in a regulatory filing.

The bank’s shares were trading at Rs 51.05 at 1:25 PM on BSE on Thursday, up over 4 per cent from the previous close.

Meanwhile, on Wednesday, the Reserve Bank kept its key repo rate -- at which it lends money to banks -- unchanged at 4 per cent for the 9th straight time, to support growth keeping in mind the concerns over the new variant of the coronavirus.

Base rate refers to the minimum rate for all loans and banks are not permitted to resort to any lending below the base rate. Banks are required to review the base rate at least once a quarter.

In banking parlance, the BPLR means the Benchmark Prime Lending Rate. With the introduction of Base Rate, BPLR is made applicable normally only on the loans which have been sanctioned before the introduction of Base Rate.

The base rate system replaced the BPLR system with effect from July 1, 2010.

Interestingly, last month, ICICI Securities had given a buy call on Karur Vysya Bank with a target price of Rs 70. The current market price of Karur Vysya Bank Ltd. is Rs 50.65. The time given by the analyst is one year when Karur Vysya Bank Ltd. price can reach a defined target, as per the report in The Economic Times.

In the meantime, CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the certificates of deposit programme for Rs3000cr of The Karur Vysya Bank Limited (KVB).

As per the rationale report, the rating continues to reflect the bank’s comfortable capitalisation with heathy liquidity and stable retail deposit profile. These strengths are partially offset by weak asset quality, average profitability, and small scale of operations with geographical concentration, reported India Infoline.