Lenders on Tuesday said they expected loan rates to start trending down in the first quarter of calendar year 2015 after the RBI hinted there could be a shift in the monetary policy stance early next year.
Speaking to a business news channel, State Bank of India (SBI) chairman Arundhati Bhattacharya said she expected the Reserve Bank of India (RBI) to cut rates by at least 50 bps after the Union Budget in March. Bhattacharya said loan rates would start trending down, partly through a compression of spreads, although deposit costs needed to come down.
Keki Mistry, vice-chairman & CEO of HDFC, said the RBI was likely to cut policy rates in March after the Budget. Mistry expects that, by then, HDFC’s borrowing costs too would come down and the home loan player would be able to pass that on to customers. “We look at the cost of funds all the time and while it has come down incrementally, we have to wait for it to come down sufficiently to reflect on the entire balance sheet. Logically, that should happen by March,” said Mistry.
IDBI Bank chairman and managing director MS Raghavan told FE that banks would “most probably follow” if the RBI cut rates in March. “It should happen quickly although deposit rates are fixed and, therefore, the cost of borrowings comes down with a lag whereas, lending rates are floating,” Raghavan. said.
Bhattacharya said, “There will be a series of rate cuts as governor Rajan has said. Moreover, if you look at how the commercial paper (CP) markets are operating, it is well below the base rate and the expectation is that when he (Rajan) does come in with a cut, he will cut by at least 50 bps.” The SBI chairman, however, said deposit rates needed to come down further first. “We led the deposit rate cut a while back and a few bigger banks cut their rates about three weeks back. As and when that gets entrenched and the deposit rates trend downwards, you can also see some kind of result in cuts in the base rates,” she added.
Bank of Baroda executive director P Srinivas said though cost of funds have come down recently, the bank would like to observe the trend for a few more quarters. “If my cost of funds come down further in the coming quarters, then I could cut lending rates,” Srinivas said.
In the absence of a pick-up in the demand for loans, bankers have been flush with funds and have been attempting to reduce their cost of deposits. Over the past four months, several banks have lowered deposit rates, including, SBI, Punjab National Bank, Bank of Baroda and Indian Overseas Bank. While PNB revised rates of bulk deposits, OBC trimmed rates in the retail segment.
SBI has lowered its deposit rates thrice in the last three months in both retail and bulk deposit brackets. Bhattacharya added that lending rates cuts are expected to happen towards the end of Q1FY16 for which banks need to reduce their deposit rates. RBI data show that the growth in deposits came in at 12.16% y-o-y, taking total deposits to R82,53,630 crore.
At present, base rate of all banks stand in the range of 10-10.25%. The base rate of SBI, ICICI Bank and HDFC Bank stands at 10%. For lenders like Union Bank, IDBI Bank and Punjab National Bank, it is 10.25%. The base rate of a bank is the lowest interest rate at which it can lend.