Private sector lender HDFC Bank has cut its base rate by 5 basis points (bps) to 9.3%, effective December 28, according to its website. This puts the bank on par with State Bank of India (SBI), which had reduced its base rate by 40 bps in September after the pReserve Bank of India (RBI) cut interest rate by 50 basis points, while ICICI Bank’s base rate is 9.35%. Most public sector banks have a base rate of 9.5% or more.
Ashish Parthasarthy, treasurer, HDFC Bank, told a business news channel on Tuesday the base rate guidelines require that rates be reviewed every quarter and on that basis, the base rate works out to 9.3%.
“Further rate cuts depend on how deposit rates move and right now, it looks like deposit rates have reached a stable level,” Parthasarthy said, adding that there have been no significant changes lowering of deposit rates across banks.
He explained that if deposit rates remain where they are, there is unlikely to be any significant changes in the base rate.
According to analysts, HDFC Bank is able to cut its base with minimal margin pressure as only 30-40% of its loans are linked to the base rate, while for other large banks, 70% of the loan book is linked to the base rate.
SBI had also cut fixed deposit rates by 25 bps across various maturities from October 5. “We will definitely keep looking at ways and means of bringing down the rate further. Going ahead, weakening of the rate will add to growth of credit,” chairman Arundhati Bhattacharya had said at the time. Andhra Bank was the first bank to cut its rates immediately by 25 bps after RBI announced the monetary policy review in September.
Led by SBI, banks have been cutting deposit rates since October last year and a one-year term deposit earns 7.5% (before the 25-bps cut to come on October 5). Bankers have 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. However, lenders said that with a cut in the base rate, all loans will become cheaper which will affect their margins immediately.
The RBI has been pushing for a better transmission of rate cuts through the banking system. So far, the central bank has cut the repo rate by a total of 125 basis points in the calendar year 2015.
Among peers
* The move puts HDFC Bank on par with SBI, which had reduced its base rate by 40 bps in September after the RBI cut interest rate by 50 basis points
* ICICI Bank’s base rate is 9.35%. Most PSBs have a base rate of 9.5% or more
