Bankers do not expect the surprise repo rate cut of 25 basis points — announced by Reserve Bank of India on Wednesday — to translate into a reduction in lending rates before April.
State Bank of India chairman Arundhati Bhattacharya said her bank would take a call on trimming base rates after taking into account evolving circumstances.
With a month left to the next monetary policy announcement, the central bank cut the repo rate by 25 bps for the second time during fiscal 2015. In January 2015, RBI had reduced the rate by 25 bps. However, only United Bank and Union Bank of India passed it on to customers with a lending rate cut of 25 bps each.
“This rate cut was not expected by bankers. We could possibly look at a rate cut only in April,” said a executive director at a public sector bank.
He explained that unless pressurised by the central bank, no banker would cut rates a few weeks before the end of the fiscal as it would result in fall in interest earned. A cut in base rate will make loans cheaper, affecting margins immediately.
“As almost 95% of loans in India are floating, a rate cut would immediately affect us,” he added.
Credit growth has been muted in the last few quarters and bankers had cautioned against any chance of revival for the next two months.
According to RBI data, credit growth stood at 10.72% at Rs 63.3 lakh crore for the fortnight ended February 6.
Banks have reduced deposit rates since April 2014 with the SBI revising its deposit rates four times since July 2014. Bankers also said that since the cut on deposit rates is only effective on fresh deposits, it takes at least two quarters for the bank to realise the benefit of lower cost of funds.
Banks’ deposit growth showed a growth of 11.77% y-o-y to Rs 84.6 lakh crore in the fortnight ended February 6, according to RBI data.
“Since we have cut rates just two months back, there is proposal to cut rates immediately. However, our asset-liability committee meets often to see whether we need any change in our lending rates,” United Bank executive director Sanjay Arya said.
Like other bankers, Arya also said that it is unlikely that most of the banks would immediately cut rates and are likely to wait for the financial year to end.
Currently, the lowest lending rate of banks is in the range of 10-11%. The base rate of SBI, ICICI Bank, HDFC Bank, United Bank and Union Bank stands at 10%. For lenders like IDBI Bank and Punjab National Bank (PNB), it is at 10.25% and for IndusInd Bank, the base rate stands at 11%.
** The repo rate cut is a welcome step that demonstrates RBI’s comfort with the inflation outlook and its responsiveness to the emerging indicators. Today’s rate action should help move the economy on a positive growth path, says Chanda Kochhar, ICICI Bank MD & CEO
** With the Govt on the path of fiscal consolidation and formal adoption of inflation targeting, inflation trajectory may remain benign and aid banks in decision making. We will take a call on base rate cut looking at all circumstances, says Arundhati Bhattacharya, SBI chairman
** If the budget was a supply-and-demand-side balancing act, RBI’s current move is complementary to fostering the activity at ground level both in the rural economy and kick-starting investment in projects, says VS Parthasarathy, Mahindra & Mahindra chief financial officer.
** The RBI has responded well by cutting rates. It is an important signal that shows the RBI is in sync with the govt on economic growth and willing to take critical calls even between the policy meeting dates, says Kaku Nakhate, Bank of America Merrill Lynch president & country head