In the first sign of relief for borrowers in a long time, HDFC Bank cut its base rate by 10 basis points on Thursday, bringing it down to 9.6%. The private sector lender?s base rate is now below that of State Bank of India (SBI) and ICICI Bank. The country?s second-largest private bank also trimmed the benchmark prime lending rate (BPLR) by 10 basis points to 18.10%.
The Reserve Bank of India had, at its review of monetary policy on March 19, reduced the key repo rate by 25 bps to 7.5%. However, most banks had at the time declared their inability to lower loan rates given they were not in a position to cut interest rates on deposits. SBI, for instance, had said that it would be difficult to drop lending rates since a 25-bps cut in the repo rate wouldn?t bring down borrowing costs meaningfully. Bankers were looking for a cut in the cash reserve ratio which would add to liquidity and bring down funding costs.
Deposits have been growing sluggishly, at just 13-14% year-on-year compared with the long-term average of 18%. Between April 2012 and now, they have grown at less than 9%, compared with 10.38% in the corresponding period a year earlier. The lack of demand for credit ? especially for capital expenditure ? has seen non-food credit increase by just 9.77% between April 2012 and March 8, 2013, way lower than the 12.76% growth seen in the year-ago period. Last week, Aditya Puri, MD and CEO of the bank, had said that it was possible loan rates would come down by 50-75 bps by the end of 2013. Pointing out that lower interest rates could only aid growth and not propel it, the HDFC Bank chief felt the environment would get better as the Cabinet Committee on Investments cleared more stalled projects. Consequently, with more projects getting off the ground, India Inc would spend more, driving up investments. Last December, HDFC Bank had cut its base rate and BPLR by 10 bps each to 9.7% and 18.2%, respectively. The bank also reduced its auto loan rates by up to 50 bps across various segments.