State-run UCO Bank on Wednesday cut its base rate by 25 basis points to 9.70%, effective from October 5. The bank has also decided to slash its deposit rates by 25 basis points across maturities to protect its margins.
“Although we are reducing deposit rates, our cost of funds will not come down immediately as the existing deposits will come at the old rates. So, reduction in cost of funds will take some time for the bank. Therefore, the base rate cut may initially impact our margins in one quarter. The impact is likely to be marginal,” UCO Bank executive director JK Garg told FE. “But overall it (margins) will get compensated as our cost of funds will come down in the future.”
The rate cut comes a day after the Reserve Bank of India decided on a 50 basis points cut in repo rate, surprising the markets. State Bank of India, the country’s largest lender had cut 40 basis points on Wednesfay.
During the April-June quarter, the Kolkata-based lender’s net interest income (NII) saw a 7.58% decline from a yer earlier to Rs 1370.64 crore. Operating profit during the June quarter also fell more than 3% to Rs. 1161.45 crore.
The public sector bank’s net profit for the first quarter halved to Rs. 256.70 crore from Rs. 521.40 for the year-ago period due to a fall in its interest income and a steep rise in provisions as the lender’s asset quality deteriorated sharply. Its interest income fell close to 7% to Rs.4728.99 crore. The non-performing assets as a percentage of total loans increased sharply to 7.30% during the first quarter of FY16 as against 4.31% in the same period of FY15.