Even before the Reserve Bank of India meets on January 29 to review monetary policy, HDFC Bank has cut its base rate by 10 basis points, bringing it down to 9.7%. At the same time, the benchmark prime lending rate (BPLR) of the country’s second largest private sector lender will be lowered to 18.20%. HDFC Bank had previously reduced its benchmark lending rates by 20 bps in June.
“For us, this is the second cut from the peak and consistent with the movement in deposit rates and the cuts in the cash reserve ratio,” observed Paresh Sukthankar, executive director, HDFC Bank. Sukthankar added it was difficult to say whether the trend, of interest rates coming off, would gain momentum given that the banking system was seeing some shortage in liquidity and that the growth in deposits had slowed. “We will need to keep a watch on the liquidity piece,” he said.
The RBI had left both the policy rate and the CRR unchanged at 8% and 4.25%, respectively, at its last review meeting on December 18. “The emerging patterns reinforce the likelihood of steady moderation in inflation going into 2013-14, though inflation may edge higher over the next two months,” the central bank had observed.
On September 18, State Bank of India (SBI) had cut its base rate by 25 basis points to 9.75%. That apart, SBI had trimmed rates on select products such as home and auto loans ahead of the festive season, in an attempt to attract customers. However, loan growth has been sluggish with non-food credit growing at just 15% y-o-y in the fortnight to December 14, taking the outstanding to R48,53,965 crore. Between April and mid-December this year, non-food credit has grown at just under 5% compared with corresponding period of 2011. The RBI has projected loan growth for 2012-13 at 16%.
However, a bigger worry for banks been the weak growth in deposits. In the fortnight to December 14, 2012 bank deposits grew by a sluggish 13.35% y-o-y with the total deposits in the system at R64,33,934 crore.
High inflation and a negative rate of return on bank deposits have prompted households to invest in physical assets such as gold and real estate.