Public sector banks, which earlier reduced their lending rates, have now started reducing their deposit rates and the return on bank deposits is expected to increasingly become lower as banks continue to cut both lending and deposit rates.

Punjab National Bank, the second largest public sector bank, today announced a further reduction in its lending and deposit rates, effective 1 December, the second in four weeks.

PNB announced a 100 basis point reduction in the benchmark prime lending rate, the second in four weeks. This will bring PNB's benchmark prime lending rate (BPLR) to 12.50 per cent, the bank said in a stock exchange filing.

PNB also reduced peak deposit rate from 10.50 per cent a year to 9.50 per cent for deposits with a tenure of one-three years. Accordingly, interest rates in the time buckets with maturities of 180 days and above have also been reduced by 25 to 100 basis points with effect from 1 December.

The deposit rates for other maturities too would be cut by 25-75 basis points beginning next week.

The bank had last revised deposit rate in October when it increased rates in between 25-75 basis points for various maturities.

The State Bank of India, the country's largest lender, has already announced a reduction in interest rates by 50 basis points across maturities from 91 days up to five years effective 1 December.

For maturities of five years and above, SBI has cut its interest rates by 25 basis points.

This may prompt banks, especially those which have left rates unchanged, to go for rate cut.