Kotak Mahindra Bank on Monday announced a 15 bps cut in the base rate. The bank’s base rate now stands at 9.85%, effective from April 16.
Five banks have cut their base rate since the announcement of the monetary policy on April 7. State Bank of India and HDFC Bank had cut their lending rates a few hours after RBI governor Raghuram Rajan urged banks to transmit the rate cuts. SBI chairman Arundhati Bhattacharya said the interest rate on the one-year term deposit could drop to levels of 8% over the next nine months.
The next day, Axis Bank and Lakshmi Vilas Bank announced cuts of 20 bps and 15 bps, respectively.
The current lending rates of majority banks hover between 9.75% and 10.25%. IDBI Bank, Bank of Baroda and Punjab National Bank have their base rates at 10.25%. Bank of India chairman and managing director VR Iyer told a private news channel a few days back that she believes BoI may contemplate rate cuts in the range of 20 to 25 bps.
United Bank and Union Bank of India are the only banks to have lowered their base rates by 25 bps each after the RBI reduced repo rates by 25 bps twice in the last three months. RBI data showed that non-food credit growth of banks in FY15 stood at 9.75% at Rs 64.70 lakh crore.
Banks have been lowering their deposit rates for quite sometime now, with SBI revising its deposit rates four times since July last year.
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. However, lenders said that with a cut in base rate, all loans will become cheaper which will affect their margins immediately. Banks’ deposit growth slowed to a 51-year low in FY15 at 11.42% -y to Rs 85.85 lakh crore in the fortnight ended March 20, according to RBI data.
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