Banks put lending, deposit rates cut on hold

Written by Banking Bureau | Mumbai, Oct 30 | Updated: Oct 31 2007, 07:00am hrs
Post the 50 basis points CRR hike by Reserve Bank of India (RBI) in its mid-term credit policy on Tuesday, banks across have held back plans to reduce their lending and deposit rates.

The banks were waiting for positive signals from the RBIs mid-term credit policy to reduce their deposit rates which had remained relatively high. A reduction of deposit rates would not only have brought down the cost of funds but it would also have helped them to reduce lending rates.

The profitability of my bank post the CRR hike may be hit to a small extent. But we dont want to go for rate cuts in either deposit or even lending right at the moment, said Chanda Kochhar, joint MD, ICICI Bank. Kochhar expects retail credit growth will get stabilised over a period of time. Corporate credit growth, which is growing at the rate of over 30%, will continue for some more time in future, she said.

According to KC Chakrabarty, CMD, Punjab National Bank, the countrys third largest bank, the CRR hike may put a burden of Rs 30 crore on the bank. Any reduction of the banks interest rate can be over a period of time, he said.

However, TS Narayanasami, CMD, Bank of India, commented that the CRR hike will add to the funding cost of majority of the banks since no interest is paid on CRR balances. The banks ability to cut interest rates on advances would thus be restrained. At some stage, he explained, banks should start moderating the rates paid on deposits, which should normally be expected in a high liquidity scenario, and that should bring down the cost and yield in the banking sector.

SA Bhat, chairman & managing director, Indian Overseas Bank, said deposit rates are likely to get affected, and that in the case of IOB, it may be reduced to the extent of 25 to 50 basis points. There is no need for revision in lending rates at this point of time. On the retail side too, no revision on interest rate is likely to happen for some time. Our bank is in a position to absorb the burden of Rs 15 crore over the next five months without passing it on to customers, he added.