Within hours of rate cut announced by RBI Governor Raghuram Rajan, United Bank has reduced the benchmark lending rate by 0.25 per cent, while other banks including market leader SBI have indicated that they would follow suit.
EMIs for home, auto and other loans will come down with the reduction in base rate or the minimum lending rate which, in turn, will boost demand and propel growth in the manufacturing sector.
After a gap of over one-and-a-half years, the Reserve Bank slashed its key policy rate by 0.25 per cent surprising the markets early today.
Taking a cue from the RBI, state-owned United Bank of India reduced its base rate by the same margin to 10 per cent from 10.25 per cent.
Asked if State Bank of India is going to cut lending and deposit rate following the RBI action, its chairperson Arundhati Bhattacharya said: “Definitely I think those cuts (deposit and lending rates) will happen. We have been talking for a while now about the easing of the rate cycle and deposit cuts. We thus believe that this cut may be just the beginning of a rate easing cycle.”
The way forward would be the reviewing of the rate cycle, she added.
Echoing similar views, ICICI Bank CEO and Managing Director Chanda Kochhar said this is the beginning for more cuts to take place and there is room for further rate cut.
“So we should not assume that this is the only rate cut. Clearly this move including the movement in deposit rates brings down the cost of funds for banks. Sure the banks will make the rate cut benefits to consumers… the movement is in the direction of reduction in interest rates,” Kochhar said.
Bank of Maharashtra Chairman and Managing Director S Muhnot said many banks would now look at easing interest rates.
“We have already cut our base rate by 0.15 per cent last month in anticipation of rate reduction by RBI. Now we would look at some select sectors like MSMEs to reduce our spread,” he said.
Kotak Mahindra Bank chief economist Indranil Pan said that with the first rate cut done, there is expectation that RBI will stay on course for more cuts of 0.25 per cent each in the near future.
“The extent of the cut may still not be too deep and the extent could be capped at a cumulative 75-100 basis points. RBI has to be careful of the inflation expectations if growth picks up while the savers also need to be provided with adequate real returns for the savings rate in India to rise and reduce reliance on foreign money for growth,” he added.