Mint Road signal: banks put off decision on rate cuts

Written by Banking Bureau | Mumbai, Jan 29 | Updated: Jan 30 2008, 04:31am hrs
The banking industry, which was eagerly looking for some signals in the Reserve Bank of Indias third quarter review of the annual monetary policy announced on Tuesday to reduce lending and deposit rates, may have to wait longer to decide on the issue.

We are cautiously watching the scenario and will maintain status quo on rates. Although we are happy with the current 22% credit growth of our bank, we are not averse to any change in the interest rates in future if the need arises, said Chanda Kochhar, joint managing director and chief financial officer, ICICI Bank, the second largest commercial bank in the country.

According to OP Bhatt, chairman, State Bank of India, the largest bank in the country, while RBI would use LAF to flexibly manage the inflow of funds from abroad, going forward, large increase in inflows leading to further rupee appreciation or a sharp slowdown in global growth and increase in financial market turbulence could prompt RBI to soften its stance.

Housing finance major Housing Development Finance Corporation is also set to take a hard look at rates. Said vice-chairman Keki Mistry: Well take a call within the next two days. But certainly, were not going to hike them.

Delhi-based Punjab National Bank (PNB) will also continue its current rates and would review them afterwards.

Maybe RBI would review the key rates in its April policy and we would also review them accordingly, said KC Chakrabarty, chairman & managing director, PNB.

TS Narayanasami, chairman & managing director, Bank of India, said his bank will wait and watch the market closely before taking any decision on lowering rates.

Despite the ongoing slowdown in the banking industry, banks credit offtake is all set to achieve the growth of 25% by the fiscal-end, he said .

In the coming months, the bid-offer spread between reverse repo and repo rate, which is currently at 175 basis points, will have to be progressively reduced to 100 basis points if banks have to reduce deposit and lending interest rates, said Mohan Shenoi of Kotak Mahindra Bank.

However, Kolkata-based UCO Bank is considering to cut its lending rates shortly. "We are mulling a cut in our lending rates by 0.5%," said S K Goel, Chairman and Managing Director, UCO Bank. The proposal will be put up before our board soon for ratification, he added.