Banks unlikely to cut lending rates

Written by fe Bureau | Mumbai | Updated: Dec 19 2012, 06:49am hrs
Bankers would like to wait for a signal from the Reserve Bank of India (RBI) before taking a call on lending rate cuts. With RBI deciding to keep key interest rates unchanged on Tuesday, top lenders led by State Bank of India (SBI), ICICI Bank and HDFC Bank said they would leave loan rates unchanged.

SBI chairman Pratip Chaudhuri said his bank would make no changes to lending rates following RBIs stance to maintain status quo. Chaudhuri added the demand for loans on the corporate side remained weak and loan disbursements were largely to retail customers.

SBI MD & CFO Diwakar Gupta said the bank has already implemented several rounds of rate cuts in recent past, including a base rate cut, leaving little scope for further easing. Despite the rate cuts, loan volumes are below expectation. We expect a pickup only in the fourth quarter, Gupta said.

Gupta said there was a case for a repo rate cut this time around, as this would have translated into further moderation of lending rates, and contributed towards reviving industrial sentiments. SBIs base rate stands at 9.75%.

Aditya Puri, the MD & CEO of HDFC Bank, told a leading business channel that the cost of funds remains high making it difficult to cut rates. So if there is substantial liquidity, which would mean something like R20-30,000 crore in Liquidity Adjustment Facility (LAF), then the cost of funds could change, and there is a very clear mechanism to reduce the base rates. If costs fall, I assure you the base rate will change because we are very conscious of our consumer responsibilities. HDFC Bank's base rate is 9.8%.

However, some banks including Bank of India and Indian Overseas Bank will consider rate cuts in anticipation of possible repo rate cut in January. There has been some moderation in the cost of deposits, we will definitely be discussing to see if we can pass on part of it by way of a rate cut, said N Seshadri, the executive director, Bank of India.

M Narendra, CMD of Indian Overseas Bank, said base rate cuts will be difficult to implement till March when many of the banks high cost bulk deposits will mature. However, we will look at select segments for rate cuts including long-term loans to corporates, he said.

With RBI hinting at lower policy rates in January, bankers expect lending rates to moderate in the near future. Chanda Kochhar, MD & CEO of ICICI Bank told a business channel, The movement in lending rates happens with the movement in cost of funds. It is too early to say what will happen in January. Having said that, I do believe in the next quarter interest rates should be on the downward trend. How fast, how sharp, how early would be very difficult to say." ICICI Bank's base rate stands at 9.75%.

Keki Mistry, VC and CEO, HDFC, said, Lending rates will come down in 2013, We expect rates to come down by 50 bps by March.

The non-food credit grew 16.76% year-on-year to an outstanding of R48,51,275 crore in the fortnight ended November 30. RBI has estimated a 16% growth in credit for this financial year.