In fact, none of the banks increased either the base rate or the benchmark prime lending rate (BPLR) after the central bank increased the key policy rate by 25 basis points on September 16. Pratip Chaudhuri, CMD, SBI, said, We believe there will not be any compulsion to raise lending rates immediately since liquidity is adequate and the cost of deposits is manageable. Unless the cost of deposits goes up, there may be no need for us to increase lending rates.
Bankers will be cautious about pressuring their borrowers since the high cost of money is already hurting them. Said MV Nair, CMD, Union Bank of India, Given the fact that profits of several corporates and, especially those in SME sector, are under pressure, it is a decision that would have to be carefully considered by bankers.
Meanwhile, bankers are a tad apprehensive about the freeing up ofthe savings deposits rate. Many of them believe that they would be forced to make up for the impact on profitability by levying service charges.
According to analysts, a 100-basis point increase in savings rate, currently at 4%, would impact net interest margins by 25 basis points. Bankers believe saving bank accounts are typically sticky and customers would not migrate simply because of a marginal difference in the returns.
Said Chanda Kochhar, CEO and MD of ICICI Bank: Inherently, the customer looks at the savings bank accounts as an ability to use the money on a day-to-day basis and, beyond that, people would like to park their deposits in other products, which offer better rates.
Aditya Puri, CEO, HDFC Bank, said: The savings account is largely a transaction account; it's not the vehicle to earn you interest. If saving rates go up by 100 basis points on, say, a deposit amount of R10,000, a customer would earn only R8 per month. It won't make too much of a difference to the customer. He added that there will be an upward bias on saving rates.
Meanwhile, the RBI proposes to ask banks to waive prepayment charges for home loans after discussions with the IBA. Bankers have been opposing the move since they believe it may cause a mismatch in their assets and liabilities. Some banks have already done way with such charges.
We have voluntarily abolished prepayment penalty on all floating rate loans, particularly in the home loan and retail segments. We are seeing an insignificant number of people moving out, said Chaudhuri.
Added, MD Mallya, CMD, Bank of Baroda, The portfolio which could move out if the prepayment penalty is abolished will be insignificant. He said, An asset-liability mismatch could only take place if there is a large-scale shift from the bank one to other, but that seems unlikely.