Indian commercial banks, it seems, are finally ready to reduce rates for India Inc and retail borrowers. This reaction comes after the RBI has left no stone unturned to ease liquidity after effecting a series of measures. On Saturday, in multiple moves, the central bank slashed the Statutory Liquidity Ratio by 100 basis points, Cash Reserve Ratio by 100 basis points, and Repo rate cut by 50 basis points..
Almost all the major banks FE spoke with have indicated their willingness to reduce lending rates by 50 basis points and above. However, it may take sometime to be implemented as formalities, like holding asset liability meeting (ALCO) to implement the decision, need to be completed. It is also expected that the banks will also reduce their deposit rates by 25-50 basis points.
For the first time, the borrowers will get some respite after almost witnessing continuous rise in the rates for last four years. Bank of Baroda CMD MD Mallya said, ?With inflation numbers falling the reduction of repo rate is a clear indication that interest rates will soften.. My bank is likely to take a view after assessing the situation early next week.?
Enough liquidity has been injected into the system by the CRR cut. Hence, liquidity concerns have been addressed for now. Cost of fund will naturally come down due to these initiatives, Mallya said.
Chanda Kochhar, joint managing director of ICICI Bank said the measures would have a cooling effect on the interbank and call money rates. ?However, the impact on deposit and lending rates will have to be watched over sometime,? she said adding that will keep the economy on growth path amidst the challenging global condition.
Union Bank CMD MV Nair said the bank would go for a lending rate cut soon. Punjab National Bank CMD KC Chakraberty, who had announced a lending and deposit rate cut on Friday said he was prepared to go for another round of cut after evaluating the situation.
Oriental Bank of Commerce CMD Alok Mishra said most of the productive sectors would get an immediate relief as credit normally picks up during the second half. Both, deposit and lending rates, are set to come down now, Misha said. ?But let us wait and watch. We are likely to take a call on our rates next week,? he concluded.
Bank of Maharashtra CMD Allen CA Pareira also expects deposit rates to come down first before the lending rates fall. But, as most of the banks have raised the bulk deposits with a maturity period of 1-3 years at higher rates, it may be difficult for them to immediately take a call on their deposit rates. ?Still, they can reduce their interest rate on fresh deposits initially. Cost of funds was all set to go southwards as the banks will be able to borrow at lower rates now,? he said.
The call money rates, at which banks borrow, were rising unabatedly and this was caused by tightening of liquidity in the system. Hence, the step taken by the RBI was all set to ease the liquidity. Pareira adds, ?Again, I believe that the productive sectors of the economy like manufacturing and infrastructure sectors may need more money in days to come, as the current easing of liquidity was likely to take care of credit offtake requirements for those sectors for 1-2 months only.?
