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Mumbai, Sept. 17: Banks are mulling another lending rate cut, which means prospective borrowers should wait a while before closing their loan deals.
The move comes after the RBI cut the cash reserve ratio by 25 basis points in its mid-quarter review of monetary policy today. The decision will swell the banks’ cash chest by another Rs 17,000 crore.
The State Bank of India is one of the lenders that is weighing a rate cut option. A senior official at the bank said its asset-liability committee would meet shortly to take a decision.
The official said the CRR cut would benefit the bank and it would consider passing it on to borrowers. The SBI had only recently brought down its deposit rates by 50-100 basis points, which had given it some headroom by widening the loan spread.
Indications are that most of the banks are unlikely to touch their benchmark base rate. Interest rates will be relaxed by about 25 basis points only on some select products such as retail loans or lending to the micro, small and medium enterprises.
Bank of Baroda, Indian Overseas Bank and Oriental Bank of Commerce are also considering rate cuts. Banking circles said some of the private lenders might also reduce their lending rates.
Indication to this effect was available from ICICI Bank, the country’s largest private bank.
Chanda Kochhar, managing director and CEO of ICICI Bank, said the reduction in CRR was a positive step and would help to ensure that systemic liquidity remained within the comfort zone.
Given the comfortable liquidity and the recent reduction in deposit rates by banks, “interest rates could be expected to trend downwards gradually”, she added.
Last month, the SBI had brought down interest rates on home loans by up to 60 basis points and that on auto loans by half a percentage point. Punjab National Bank, Union Bank of India, Corporation Bank and Indian Overseas Bank also cut rates.
Bankers were cautious in their outlook on policy rate reduction from the central bank because of inflation. Shubhada Rao, chief economist at Yes Bank, said while support from prudent fiscal management would create room for the RBI to address growth risks, the extent of monetary support from the apex bank was expected to be limited because of stubborn core inflation (non-food manufactured products inflation). The bank expects the RBI to cut repo rate by a cumulative of 50 basis points in the rest of this fiscal.
On the other hand, Anubhuti Sahay and Nagaraj Kulkarni of Standard Chartered Bank, India, said the RBI was unlikely to cut rates for the rest of this year as inflationary pressures persisted and there was upside pressure from high global commodity prices. They, however, added that the central bank had opened a window of potential action (on the repo rate) if certain conditions were met. These include actions to kickstart the investment cycle and ease supply-side pressures besides power sector reforms, accelerating large infrastructure projects and improving the environment for FII investment in the debt markets.
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