SBI obliges, others base argument on caution

By: | Published: June 3, 2015 12:12 AM

Nation’s largest lender, 3 others cut base rate after RBI policy

Although a clutch of public sector lenders — State Bank of India, Allahabad Bank, Punjab & Sind Bank and
Dena Bank — trimmed their lending rates on Tuesday, other bankers said they would wait for some more time.

Apart from SBI, the other PSBs that lowered their base rates had been hitherto lending at 10.25% — the higher end of the band. Most banks have been lowering their deposit rates since October, anticipating a turn in the interest rate cycle.

On Tuesday, while SBI lowered its base rate by 15 bps to 9.7%, Allahabad Bank reduced it by 30 bps to 9.95%. Punjab & Sind Bank and Dena Bank both lowered their bases rate to 10%. In April, SBI had cut its base rate by 15 bps to 9.85%.

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SBI managing director Pradeep Kumar told a business news channel, “Anticipating lending rate cuts, we have been cutting our deposit rates, so that our cost of funds come down, and have cut the one-year deposit rate to 8% . Going below 8% is difficult because we are already 50 bps below the market.” For instance, SBI’s deposit rate in the 1-2 year bracket has fallen by 100 bps in the last one year, whereas its lending rates have fallen by 30 bps.

He added that SBI’s retail advances will grow faster than last year at 18% in FY16 as its base rate is the lowest and, consequently, the EMIs are the lowest.

Ranjan Dhawan, managing director and CEO, Bank of Baroda, said that although lending rates would ease going forward, demand for credit was still weak with some signs of pickup. “I would assume that in 2-3 weeks, if there is enough indication that there is some demand for credit, lending rates would ease going forward,” Dhawan said.

Other lenders said they would lower their base rates only after demand for credit picks up and added that transmission of policy rates would take some more time.

They added that though it was an easing interest rate scenario, it would not be fair to predict when lending rates could fall further.

According to Arun Tiwari, chairman and managing director, Union Bank, there is room for further rate cuts by the bank, but not immediately. “We would like to take a look at our rates next quarter,” he added.

After the Reserve Bank of India had lowered repo rate by 25 bps in January and March and urged transmission in April, almost every bank lowered lending rates ranging between 15bps  and 25 bps.

Lenders like United Bank and Union Bank were the first ones to lower base rates in 2015 after RBI cut the repo rate by 25 bps in January.

RBI data showed that non-food credit grew 10.4% in May 15 fortnight to R65.2 lakh crore and deposits grew 11.85% to R87.3 lakh crore in the same period.

To lower their cost of funds and prepare for future lending rate cuts, lenders have been lowering their deposit rates for quite sometime now, with SBI revising its deposit since last 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 to realise the benefit of lower cost of funds.

They also said that since the small savings scheme of the government are at a much higher rate — the Sukanya Samriddhi scheme is at 9.2% — and banks compete for the same kitty of deposits, it becomes very difficult for them to lower rates.

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