Thursday surprise prompts banks to trim rates

By: and |
Updated: January 16, 2015 1:15:13 AM

Union Bank, United Bank announce 25-bps cuts; PNB to consider similar move next week, other large banks may not toe the line

bank, banks, public sector banks, banks profit, Kotak Institutional Equities, private banks, profit after tax, PAT growth, ICICI banklarger banks which already offer the cheapest credit in the market may wait a while.

The Reserve Bank of India’s first cut in the repo rate in 19 months on Thursday pushed two public sector banks to trim their base rates and another, Punjab National Bank, to say it would consider a similar move next week. However, larger banks which already offer the cheapest credit in the market may wait a while.

Union Bank of India and United Bank of India cut their base rates by 25 bps to 10%, on Thursday, making themselves more competitive. “We already had some headroom to reduce base rate as our cost of deposit was low compared to other public sector banks. RBI’s decision has prompted us to cut the base rate,” UBI executive director Deepak Narang said while talking to fe.

The RBI cut its repo rate by 25 bps to 7.75%, citing easing inflation and guiding for further cuts if the quality of fiscal consolidation stayed good. With the reduction in base rate, all kinds of loans — including housing and auto loan — are expected to become cheaper.
The country’s largest lender, State Bank of India (SBI), was cautious in its guidance. SBI chairman Arundhati Bhattacharya said, “It will depend upon what are the margins that we wish to retain. When you bring down the deposit rates, it takes a little while to kick-in whereas the fall in income will kick-in from day one. We need to balance both of these,” Bhattacharya told a leading television channel.


The growth in non-food credit growth this year has been around 11% year-on-year with disbursals hitting a decade low during April-December period. According to bankers, the sanction pipeline is weak and would take at least two quarters for the demand to pick up.

Bank of Baroda (BoB) too indicated it will wait before it cuts its lending rate even though deposit rates have been easing for a while.

However, its executive director Ranjan Dhawan said this would depend on the outcome of the bank’s asset liability management committee (ALCO) meet. SBI, ICICI Bank, HDFC Bank and Kotak Mahindra Bank all have their base rates at 10%. Most other banks’ base rates are at 10.25%.

Bank of Maharashtra, whose base rate was 10.40%, had trimmed its base rate by 15 bps on January 1. Sushil Muhnoot, chairman and managing director at Bank of Maharashtra, said, “I believe all the banks will be looking forward to base-rate reductions. We had anticipated this move before hand and had reduced our base rate by 15bps.”

Meanwhile, the Union Bank of India also announced cut in deposits rates for different buckets under retail and bulk deposits from 10 bps to 50bps.

UBI’s reduction in the benchmark base rate from 10.25% to 10% will come into effect from January 27, the bank said in a filing to the BSE.

The RBI had last reduced the repo rate by 25 bps way back inits policy review held on May 3, 2013.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.