ICICI Bank MD and CEO Chanda Kocchar said that given the comfortable liquidity situation and recent reduction in deposit rates, interest rates in general is expected to go down gradually. However, we will have to continue to keep an eye on funding costs given the level of CASA deposit growth in the system, she added.
Kochhar made the statement following the recent 25 basis points (bps) cut in cash reserve ratio (CRR) by the Reserve Bank of India (RBI). The move by RBI infused R17,000 crore liquidity into the banking system. The bank has been comfortable with the liquidity situation within RBIs comfort levels of plus or minus 1% of NDTL (Net Demand and Time Liabilities).
ICICI Bank has a base rate of 9.75%, HDFC Bank is at 9.8%, Axis Bank at 10%, IndusInd bank at 10.75%, Federal Bank at 10.45% and Yes Bank at 10.5%.
Bankers say CRR cut is a more potent instrument because it acts on the liquidity base of banks. In case of a policy rate cut, RBI will have to take actions through open market operations or other mechanisms to provide liquidity.
MD and CEO of private sector lender HDFC Bank Aditya Puri on Tuesday indicated that with the cost of funds trending downward, the case for lending rate cut has become strong. Speaking at a press meet, Puri said the banks Asset Liability Committee (ALCO) will take a call by the end of month. The base rate calculation is such that if your cost goes down, you can at most lag in the quarter, but then you will have to reduce your rates. But the final call on rate cuts will be made by the ALCO, said Puri. Around 30-40% of the banks portfolio is linked to the base rate.
MD & CEO of IndusInd Bank Romesh Sobti also echoed the views of his peers. Deposit rates are coming off and a cut in lending rates is inevitable, he said. IndusInd Bank has a base rate of 10.75%.
The ALCO of Axis Bank is also expected to meet soon to take a call on base rate cuts. Directionally, the interest rates are moving downwards. The environment is more conducive to lower rates now than was the case two months ago, said Jairam Sridharan, senior vice-president and head of consumer lending and payments.
Banks are also looking to cash in on the improved market sentiment after the series of economic reforms announced by the government and the festive season to drive loan growth. According to RBI data, the year-to-date (YTD) credit offtake as on September 7 stood at R1.38 lakh crore, considerable lower than YTD growth in deposits which stood at R4.1 lakh crore.
Abraham Chacko, the executive director of Federal Bank, said there is room for a base rate cut. Our ALCO will meet in next two weeks. We are currently waiting and watching on the retail portfolio for any festival schemes, he said.
Jaideep Iyer, senior president, Financial Management at Yes Bank, said the likelihood for a base rate cut is high as the bank recently cut deposit rates by 25-30 basis points (bps) across maturities. The bank has a relatively higher cost profile because of a low current account and savings account balance of 16.3%. As we have a large proportion of high cost funds, the falling rates will help ease our funding costs considerable. This can be passed on to customers, he added.