Deposit rates not expected to be cut anytime soon due to sluggish growth; banks non-committal on loans
New individual borrowers can expect interest rates to be lower on specific products with some banks expected to use the additional liquidity arising out of the lower statutory liquidity ratio (SLR) to attract customers.
The Reserve Bank of India (RBI) on Tuesday cut the SLR by one percentage point to 23%, a move that will free up close to R60,000 crore of liquidity. However, existing borrowers are unlikely to see their loans becoming cheaper in the near future as banks are not able to mobilise deposits easily.
Pratip Chaudhuri, chairman, State Bank of India (SBI), said banks may entice new customers with lower lending rates, which would nevertheless be higher than the 7.5-8.5% that they were earning on government bonds.
?Even if the rate is lower by 25 basis points compared to the current rate, it will add to the bottom line. Our asset liability committee (ALCO) will meet maybe today or tomorrow and decide,? he said.
Chaudhuri pointed out that corporate lending rates were more or less fixed, while term loans had their own dynamics. ?I think there will be a greater scramble or competition for the retail business and that would have to come on the back of some rate cut,? he said. Not all banks believe that loan rates can be brought down since the cost of deposits remains high and the pace of growth of deposits has been sluggish.
Chanda Kochhar, MD and CEO of ICICI Bank, said that while SLR cuts do add to liquidity, their impact on rates is not immediate. ?This is unlike a cut in the cash reserve ratio (CRR) where the impact on rates is more immediate,? Kochhar pointed out, adding that the bank would continue to focus on providing credit. ?How soon the rate cuts could happen will depend on how soon liquidity comes in from the SLR cut,? she said.
Bankers are not expected to cut deposit rates soon. KR Kamath, CMD of Punjab National Bank, said, ?With the deposit growth rate decelerating banks will have to keep rates unchanged for the time being at least.?
RK Bakshi, ED, Bank of Baroda, said that the SLR cut will not have an impact on deposit rates immediately because of the deficiency of liquidity in the market as well as the high inflation.
Bakshi expects no action on lending rates either. ?It would not be possible to moderate lending rates if fixed deposit rates don?t fall,? he said.
SBI?s Chaudhuri said that a cut in short-term deposit rate cuts looked unlikely because it was difficult for banks to compete against short-term products from mutual funds like the fixed-term maturity plans, which offered returns of 9-9.25% with tax benefits.
However, for deposits with a longer tenure of 5-10 years, which offered customers assured and safer returns, rates could be dropped. ?There could be some room for banks to cut long-term rates, but that would differ from bank to bank, depending on their asset-liability position,? he said.
