After nearly two years, banks are set to bring down interest rates following the 25 basis points reduction in repo rate by the Reserve Bank of India.
Public sector United Bank of India has already reduced its base rate, or the minimum lending rate, by 25 basis points to 10 per cent from 10.25 per cent.
Leading banks including SBI and ICICI have indicated the possibility interest rates going down in the near future.
“I think those cuts (deposit and lending rates) will happen. We have been talking for a while now about the easing of the rate cycle and deposit cuts. We thus believe that this cut may be just the beginning of a rate easing cycle,” said Arundhati Bhattacharya, chairperson, State Bank of India.
Most PSU banks are waiting for SBI to announce a cut. SBI last cut the base rate by 5 bps to 9.70 per cent in January 2013. Anticipating a rate cut, SBI had reduced interest rates on retail term deposits over one year by a quarter percentage point in December 2014.
Many lenders including Bank of Baroda, Bank of India, Andhra Bank, ICICI Bank and Central Bank of India had reduced deposit rates in the October-November period in the wake of good liquidity and poor credit offtake.
“Together with the various initiatives being taken by the government, the rate cut would strengthen the positive momentum in the economy by lowering borrowing costs as the lower rate regime reflects in bank funding costs over time,” said Chanda Kochhar, MD & CEO, ICICI Bank.
Home loan rates had gone up by over 300 basis points to 10.75 per cent in the last four years.
Indian Banks Association chairman TM Bhasin said, “Repo rate cut gives an indication of downward bias towards rates. The banks have already started reducing rates of interest on deposits, which will eventually bring down the cost of funds, prompting the banks to cut the lending rates.”
Morgan Stanley said the RBI cut is a beginning of a big rate cut cycle. “We expect a further 125 bps over the next 12 months, cumulative 150bps in this cycle (compared to its earlier forecast of 50bps rate cuts),” Morgan Stanley economist Chetan Ahya said in a research note.