Faced with tepid credit growth, private sector lender ICICI Bank on Thursday reduced it base rate by 5 bps to 9.7%, bringing it on a par with industry leader SBI and HDFC Bank. The bank had earlier cut base rate by 25 bps in April.
“ICICI Bank has announced a reduction of 0.05% in the ICICI Bank Base Rate (“I-Base”),” ICICI Bank said in a BSE filing. With credit growth not picking up, banks have been left with no option but to reduce lending rates. Although banks have been reducing deposit rates since October last year to facilitate a lending rate cut, the reduction in cost of funds reflects only after eight to nine months. However, lenders said with a cut in base rate, all loans become cheaper immediately, affecting their margins. RBI data showed that between April 3 and June 12, deposits have fallen 1.63% or Rs 1.45 lakh crore.
SBI was the first bank to cut lending rate to 9.7% after the RBI had cut repo rate by 25 bps. HDFC Bank followed suit last week, reducing its base rate to 9.7% as well.
Non-food credit could be heading for a quarterly fall if the current trend continues for a fortnight. Non-food credit offtake of banks shrank 3.32%, or Rs 2.25 lakh crore, between April 3 and June 12. Outstanding non-food credit stood at Rs 65.36 lakh crore as of June 12, a growth of 9.82% from a year ago and sharply down from Rs 67.62 lakh crore as of April 3.
In FY15, ICICI Bank’s corporate loans grew 10%, but its retail assets – which constituted 42% of the loan portfolio – saw a 25% y-o-y growth. This took its total growth in domestic loans to 18% compared to last year. However, delinquencies remained high as the the bank added Rs 3,260 crore of bad loans in Q4, including slippages of Rs 2,260 crore from the standard restructured category to the NPA category.
Chanda Kochhar, MD & CEO, ICICI Bank, had said earlier that the bank has witnessed a gradual improvement in corporate loan growth and sounded optimistic about credit growth in FY16. “We believe that some amount of growth on the corporate side is coming back,” she had said.