Banks set to slash interest rates soon

A 25 basis points cut in the bank rate and CRR by the RBI is expected to lead to a realignment of lending rates and deposit rates among the ...

A 25 basis points cut in the bank rate and CRR by the RBI is expected to lead to a realignment of lending rates and deposit rates among the banks by similar points.

Speaking to The Indian Express, State Bank of India’s chairman A. K. Purwar said the bank is discussing the possible fallout of the RBI’s cut. “We will be deciding about our action plan in the next two days,” he said, adding that in case of any cut, both deposit and lending rate have to be realigned.

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The reduction in bank rate and CRR by 0.25 percentage points each is expected to translate in further reduction in lending rates of banks which had remained “sticky despite regular reduction in bank rates,” Ficci president A C Muthiah said in a statement.

On RBI’s expectation of 5-5.50 per cent inflation during this year, Ficci said “this is an optimal level, which will give industry enough incentive to produce without hurting the consumer.” ENS

Purwar further said that any marginal lending rate reduction may not mean much to the top corporates as well as to housing loan borrowers, but will significantly impact the medium and small-scale borrowers who constitute 80 per cent of the bank’s borrowers.

Bank of Baroda CMD P. S. Shenoy said there would be a cut in the lending and deposit rates in the range of 25 basis points. Echoing a similar view, Corporation Bank CMD Cherian Verghese said “we will fine tune the rates—lending and deposit rates”.

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According to Purwar, the bank will be abiding by the instructions of the RBI while deciding about the lending rate. The apex bank in a bid to enhance transparency in banks’ pricing of their loan products as also to ensure the PLR truly reflects the actual cost has asked banks to consider certain parameter for determining their benchmark lending rate.

A Bank of India official commented that the pressure to reduce the lending rates will be felt only after June 14, the day when the cut in CRR will come into effect.

“But still, a further reduction in rates cannot be done unless the deposit rates are reduced. We will definitely review the situation,” he added. Central Bank of India chairman and managing director Dalbir Singh said the policy was a one step forward for the banking reforms to ultimately reach international standards.

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