Private sector banks are expected to cut lending and deposit rates by up to 50 basis points within a fortnight while continuing their existing line of credit to mutual funds, non banking financing companies and small & medium enterprises.
In a meeting with the finance secretary Arun Ramanathan and Reserve Bank of India deputy governor V Leeladhar on Wednesday, heads of private and foreign banks said they will seriously examine cutting lending and deposit rates, Ramanathan told reporters. Banks have told the government that there was enough rupee liquidity into the system as of now even as they demanded a special foreign exchange line of credit for their overseas operations, indicating that there was shortage of dollar liquidity. “Banks have demanded forex line of credit,” Ramanathan said.
However, the exact quantum of dollar liquidity they have asked for was not immediately clear. Ramanathan said that the liquidity panel that he headed has submitted given its suggestions to the government. The panel is understood to have recommended the government to provide banks a dollar line of credit.
Private and foreign banks are moving to review their rates a day after public sector banks announced their decision to pare rates by up to 75 basis points in a week’s time.
ICICI Bank Joint MD Chanda Kochhar said there was a consensus between the bankers that interest rates should come down. “But we will have to see how situation moves before we take a decision. We continue to review it on daily basis,” she said.
State-owned Bank of India has already cut its prime lending rate by 75 basis points to 13.25% effective Thursday while it plans to reduce deposit rates from December 1. State Bank of Bikaner & Jaipur has cut is PLR by 75 basis points effective Wednesday. The meeting was attended by ICICI Bank’s Kochhar, HDFC Bank MD Aditya Puri, Federal Bank MD & CEO M Venugopalan, Axis Bank chairman and CEO PJ Nayak and representatives of Jammu & Kashmir Bank, Deutsche Bank, HSBC Standard Chartered Bank among others.
Sources present in the meeting said banks are likely to lower their lending and deposit within two weeks. The banks also said that they would continue the existing credit lines to companies, non-banking finance companies, SMEs and mutual funds, Ramanathan said.
Head of at least one bank, however, said it was unlikely to cut rates. “Public sector banks account for 96% of the Indian credit, how does it matter if private banks do not reduce rates,” he said, asking not to be named. The finance secretary said liquidity is comfortable at the moment, but agreed that the situation has to be monitored on a continuous basis.
Indeed, call money rates fell to 6.75/7.00% on Wednesday, from the previous close of 7.65/7.80%, as demand for funds fell in the second week of the fortnight and most of the requirements banks had were met by the central bank through repos. The RBI has injected Rs 2,70,000 crore through various monetary measures including 350 basis points cut in cash reserve ratio, 100 bps in statutory liquidity ratio and 150 bps in repo rate.
Federal Bank MD and CEO M Venugopalan said the expectation is that his bank would pare lending rates at least by 50 basis points. “The deposit rates would come down accordingly,” he added.
A Citibank official said, ?We will follow the large players such as SBI and ICICI Bank. Our credit committee meeting is yet to happen to decide on the same.? ?We haven?t met so far to take a decision on the interest rates,? said the spokesperson of HSBC bank.
?We have still not taken a call on the interest rate front,? said an official from Deutsche bank. Standard Chartered Bank was unavailable for comment.
