Axis Bank snips base rate 20 bps, LVB 15 bps

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Mumbai | Updated: April 9, 2015 5:21:04 AM

Axis Bank on Wednesday became the latest lender to trim its base rate after State Bank of India (SBI), HDFC Bank and ICICI Bank reduced their lending rates on Tuesday.

Axis Bank on Wednesday became the latest lender to trim its base rate after State Bank of India (SBI), HDFC Bank and ICICI Bank reduced their lending rates on Tuesday.

The private sector bank cut its base rate by 20 basis points to 9.95% while simultaneously trimming the  interest rate on deposits across various maturities by 25 basis points.

Home loan player HDFC is expected to lower lending rates later this week.

Currently, ICICI Bank has the lowest base rate at 9.75% followed by HDFC Bank and SBI, whose base rates are 9.85%. While a 25 basis points lending rate cut cannot on its own prompt companies to invest in new capacity, both companies and individuals will get some relief.

Axis Bank, State Bank of India, HDFC Bank, ICICI Bank, RBI monetary policy, Reserve bank of india, Arundhati Bhattacharya

Analysts believe that more transmission appears unlikely given that further cuts in deposit rates would eat into deposit growth, already at multi-decade lows of 11.4% in FY15. With small savings offering interest rates of 8.75%, banks are already finding it hard to attract deposits.

On Tuesday, both SBI and HDFC Bank cut interest rates on deposits with SBI chairman Arundhati Bhattacharya saying the interest rate on the one-year term deposit could drop to levels of 8% over the next nine months.

In Tuesday’s bimonthly monetary policy, the Reserve Bank of India governor Raghuram Rajan had expressed concern on the lack of transmission of interest rate cuts, pointing out that the cost of funds had fallen. The RBI has cut the repo rate twice in  2015 by 25 bps each time, bringing the rate down to 7.5%.

Only United Bank and Union Bank of India had cut their base rates by 25 basis points each early this year. Some banks are set to hold their asset-liability committee meetings soon to decide on their base rates while a few said they would wait for the credit demand to pick up before deciding to lower their lending rates.

Non-food credit had hit a 20-year low at 9.75% in fiscal year 2015 while deposit growth had fallen to a 51-year low of 11.42%. A sluggish economy coupled with lower rates in the bond and commercial paper markets had led to the weak credit offtake. Lakshmi Vilas Bank also cut its lending rate by 15 basis points on Wednesday to 11.10%, effective April 14.

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