After initial reluctance, SBI, HDFC Bank & ICICI Bank cut base rates by 15-25 bps
Barely hours after RBI governor Raghuram Rajan chided banks for not passing on rate cut benefits, State Bank of India, HDFC Bank and ICICI Bank on Tuesday lowered their base rates by 15-25 bps. Other banks are expected to follow suit.
While earlier in the day, lenders had appeared reluctant to heed Rajan’s ‘advice’, they did oblige later in the evening. While SBI and HDFC Bank lowered their base rates by 15 basis points (bps) each to 9.85%, ICICI Bank reduced it by 25 bps to 9.75%. SBI chairman Arundhati Bhattacharya said that home loans would now be available at an interest rate of 10%.
At present, the base rates of all banks are in the range of 9.85-11%. The base rates of SBI and HDFC Bank are at 9.85% each, while for United Bank and Union Bank, it is 10%. For IDBI Bank and Punjab National Bank (PNB), the rate stands at 10.25% and, for Federal Bank, it is 10.2%.
The action of the big-3 banks followed Rajan’s comments in the morning, rubbishing lenders’ claims that cost of funds had not come down. “I do not see an environment where credit growth is tepid, banks are sitting on money and their marginal cost of funding (has) fallen, the notion that it hasn’t fallen is nonsense, it has fallen,” Rajan said.
Top bankers were, however, unanimous in rejecting Rajan’s suggestions that the situation was ripe for a rate cut and said it took a lot more than repo rate reductions by the central bank for banks to cut their base rates.
In a sharp reaction, Bhattacharya said: “In India, things work differently from international banks. We are very deposit-based. If you look at SBI, we have just 1% market borrowing and the rest is basically long-term bonds or deposits, and deposits are the lion-share of it. So, it is based on long-term deposits.”
Speaking to a private news channel, Bhattacharya said it would be difficult for SBI to cut rates if other banks do not do so. “Even then, I think on the lending side, there is a tendency to move together as there is a question of competitiveness and credit growth is quite low. Everyone would like to compete for whatever is available in the market.”
Asked if the lending rate cut would affect SBI’s margins, she said the bank had been working on deposit rate cuts and had started quite early, so it would be able to hold on to the margins. “At this point of time, it is the right time to do it,” she said.
Other lenders said they would lower their base rate only after demand for credit picks up, adding that the transmission of policy rates would take some more time. They said though it was an easing interest rate scenario, it would not be fair to predict when the lending rates could fall.
After RBI lowered repo rate by 25 bps twice in last three months, only United Bank and Union Bank had cut their base rates by 25 bps each. Asked when they expected the transmission of policy rates, bankers said an immediate transmission of monetary policy changes was unlikely.
Earlier in the day, ICICI Bank MD & CEO Chanda Kochhar had said that some amount of cut in deposit rates started the whole cycle of easing and rates would come down. “Beyond that, it would be unfair to say what date in April and by how much; let all the asset-liability committees meet and decide. But it is an easing interest rate scenario,” she had said.
RBI data show that banks’ non-food credit growth stood at 9.75%, at Rs 64.70 lakh crore, in FY15.
Banks have been lowering deposit rates for quite sometime now, with SBI revising its deposit rates four times since July 2014.
Bankers also said 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. However, lenders say 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-o-y to R85.85 lakh crore in the fortnight ended March 20, according to RBI data.