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  1. Why RBI rate cut is unlikely to translate into lower borrowing costs for customers

Why RBI rate cut is unlikely to translate into lower borrowing costs for customers

Some lenders will take the decision after their ALCO meetings, scheduled from later this month

Mumbai | Published: August 3, 2017 4:00 AM
“I don’t see much scope for lending rates coming down. We are low enough and we have passed on the benefit to our customers,” said chairman Arundhati Bhattacharya.

The Reserve Bank of India’s decision to cut the benchmark lending rate by 25 basis points on Wednesday is unlikely to translate into lower borrowing costs for customers, with banks seeing little scope of further reduction in lending rates. The country’s largest lender, State Bank of India, ruled out reduction in its lending rate. “I don’t see much scope for lending rates coming down. We are low enough and we have passed on the benefit to our customers,” said chairman Arundhati Bhattacharya. SBI had cut its MCLR by 90 basis points to 8% in January on the back of large inflows in savings and current accounts. In a surprise move on Monday, it cut its savings deposit rate to 3.55 from 4%.

A large private sector bank also said it does not see room for further reduction in its lending rates. The loan growth in the Indian banking sector is at multi-decade lows. The latest data from the RBI show banks’ non-food credit grew merely 7.26% year-on-year to Rs 76.53 lakh crore at the beginning of July. Some other lenders said they are still studying the implications of reduction in the marginal cost of funds-based lending rates (MCLRs) on their balance sheets and have deferred the decision till their next asset-liability committee (ALCO) meeting, which will only take place in the second half of the month.

“Our ALCO meeting is scheduled for the second week of August. Any decision on cutting the MCLR will be taken then,” said Shanker Iyer, general manager & CFO, Bank of India. He said monetary policy transmission is likely to be slow, and there could only be a 5-10 basis points cut in the MCLR.
The state-run bank is also considering lowering its deposit rates. “There is a lot of liquidity, and there is limited avenues for deployment, which is squeezing our margins,” Iyer said. The bank’s overnight MCLR is 8% and the one-year MCLR is 8.40%. Another public-sector lender, Union Bank, said it will take a call on reducing its MCLR during the ALCO meeting scheduled for the last week of August. “Any revision in the MCLR will be from September 1,” said managing director and CEO Rajkiran Rai G.

“If deposits costs come down, I will definitely pass it on to the borrowers. Liquidity is sufficient and the tendency is towards reducing.” Union Bank’s overnight MCLR is 7.90%, while the one-year rate is 8.40%. Private sector banks such as Axis Bank and Kotak Mahindra Bank said the 25-basis-point cut was largely factored in and the the scope to cut lending rates is not huge.  “As of now, no decision has been taken. It depends on the cost of borrowing. If there is scope, we will  take the call,” Sidharth Rath, group executive, corporate and transaction banking at Axis Bank, said. Commenting on the RBI policy action, HDFC chairman Deepak Parekh said: “I think it is a good move to the economy. I think it was expected and the MPC has taken a right decision.”

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