HDFC Bank, ICICI Bank, State Bank of India walk the Raghuram Rajan talk

Banks on Tuesday moved to trim their base rates, making loans cheaper for both corporate and individual customers...

New Delhi

April 8, 2015 01:42 IST

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(L-R) MD ICICI Bank Chanda Kochhar, MD HDFC Bank Aditya Puri, Chairperson State bank of India Arundhati Bhattacharya address the media after the RBI policy announcement in Mumbai on Tuesday. PTI

Banks on Tuesday moved to trim their base rates, making loans cheaper for both corporate and individual customers. While two leading lenders, State Bank of India (SBI) and HDFC Bank, lowered their base rates by 15 basis points to 9.85%, ICICI Bank went a step further, pruning its base rate by 25 basis points to 9.75%.

In a highly competitive environment in which demand for credit is weak, other lenders are likely to follow suit to prevent being outpriced. HDFC vice-chairman and CEO Keki Mistry said there was some scope to reduce rates. “Our ALCO (asset-liability committee) will be held later in the week to decide but it’s a fact that the incremental cost of funds have come down,” Mistry told FE.

However while borrowers will benefit from the cuts — equated monthly instalments for home and car loans, for instance will become smaller — savers will have to learn to live with lower returns from deposits.

Both SBI and HDFC Bank have been trimming deposit rates over the last few months and are likely to drop them further. The cut in loan rates comes after a 50-basis-point drop in the key policy rate — in two instalments — since January 15. SBI chairman Arundhati Bhattacharya told a television channel she hoped the lower rate would give credit growth a fillip. “It’s a bit front-loaded but at this point we are going with 15 basis points and we want to see if it gives a fillip to credit growth. We hope that higher volumes will make up for the lower rate,” Bhattacharya said.

The SBI chairman confirmed that her bank will be reducing rates in the one-year bucket though it might raise rates on the shorter side. “It’s possible we could lower the one-year deposit rate to 8.25% soon and perhaps move towards 8% in six to nine months,” she said.

Paresh Sukthankar, deputy managing director, HDFC Bank, observed that since his bank was already pricing the base rate on the marginal cost of deposits, the recent drops in deposit rates had enabled the cut in the base rate. “We have brought down the rate on the one-year deposit rate to 8.5% from 8.75%,” Sukthankar said, adding that the bank’s net interest margins were unlikely to be affected. “Our margins have been moving in a tight range and they will remain there,” he said.