Leading banks,including SBI and ICICI Bank,today said lending rates will fall after the Reserve Bank cut repo rate by 0.50 per cent.
Country’s largest lender SBI said it will ‘substantially’ cut lending rates soon. It,however,will not be an across- the-board rate cut.
ICICI,the biggest private bank,said EMIs will fall as a result of the reduction in interest rate,but did not indicate the quantum of reduction or the timeframe. It added that the cut will be across both deposits and lending rates.
HDFC Bank too said deposit and lending rates will fall.
At the post-policy interaction here,State Bank of India (SBI) Chairman Pratip Chaudhuri said,”Of course,there will be a transmission. The transmission of the last cash reserve cut also has not happened fully,as that came in March. We thought we will wait till the 17th (today) and do a comprehensive cut.”
“Our asset liability committee (Alco) will be meeting this evening itself and take a call,” he added.
“A lending rate cut will not be across the board,but will be particular for those segments where the mark-up above the base rate is significantly high. So,largely in our case,it will be for SMEs,but it is for our Alco to take a call,” he said.
ICICI Bank Managing Director and Chief Executive Officer Chanda Kochhar said,”I think consumers have to take that as good news”. She added,”But how fast the transmission will take place and at what rate,is what we all will have to watch,depending on our cost of funds. This is clearly the beginning of a trend where EMIs would fall.”
After 36 months of high interest rate regime,the Reserve Bank today brought down repo rate at which it lends to banks by a 50 basis points to 8 per cent with immediate effect,as its policy focus has shifted to growth following consistent moderation in inflation.
RBI Governor Duvvuri Subbarao also infused additional liquidity into the system by not changing the CRR,which was cut by 50 bps and 75 bps on January 24 and March 9,respectively,to the current 4.75 per cent.
He also doubled the quantum of money that banks can borrow from the marginal standing facility of the overnight call money counter of the central bank.
Chaudhuri described the RBI’s policy decision as a bold measure to prop up growth.
He said that the bank will shortly bring down lending rates “substantially”,after assessing the impact on cost of funds.
He added,”We have to look at some other parameters like the cost of deposits to take a final call on passing on the rate cut to borrowers. But it will happen very soon.”
Describing the policy as “a very positive and a bold step” Kochhar “Yes,you would see a reduction in interest rates,clearly it will have to be across both deposits and lending rates. In fact,a cut in the deposit rates is absolutely required,otherwise the cost of funds for banks will not go down. You would see a decrease.”
The second largest private sector lender HDFC Bank Managing Director and Chief Executive Officer Aditya Puri said,”Both deposit and lending rates will come down,it will probably take time. Wait for the cost to come down,then the base rate can come down.”
But when asked whether the base rate reduction will be of an equal measure,he said,”By and large it should be by equal measure,but it will be subject to market conditions.”
Indian Banks Association Chairman M D Mallya,who also is the Chairman and Managing Director of Bank of Baroda,gave credit to the RBI for taking this bold step.
However,he said,”The RBI has cautioned that macroeconomic situation will determine its future action as there are risks which are still persisting.”
Terming the RBI’s decision as “the right move”,state-run Bank of India’s Chairman and Managing Director Alok K Misra said the rate cut indicates that the RBI has given priority to growth,keeping a close watch on inflation.
“The repo rate cut will be a sentiment-booster for the economy and is expected to address the concerns of different quarters. Increased borrowing limits (doubling of the MSF to 2 percent) will further address the liquidity concerns,” he said.
“The RBI has rightly shown its concern on the inflation and fiscal consolidation fronts. The guidance indicates that further easing of policy measures may be constrained by these critical factors. Today’s policy statement,while recognising the challenges of fiscal consolidation and inflationary pressures,is preparing for a growth,” Misra added.
Federal Bank Managing Director and Chief Executive Shyam Srinivasan said the policy stance has given a strong signal and a much-needed impetus to the market.
“This front-ending of interest rate cut is a bold move that should see confidence returning to the markets and lead to the virtuous investment/capital formation cycle. It should provide the right fillip to the industry for going ahead with projects that were stuck on the drawing board,” he said.
On the future rate cuts,Srinivasan said,”Though RBI has said that the ability to further cut rates is low,we believe the year could see at least two more rounds of rate cuts.
Depending on the macroeconomic variables,there can be a cut in CRR as well.”
He added,”Though the challenges on the domestic and overseas front remain,I believe that appropriate policy measures can reignite the growth cycle. The deposit and lending rates will come down.”
Jammu & Kashmir Bank Chairman Mushtaq Ahmad said the bank will bring down the lending rate,and the policy initiative will help banks generate volumes,customer base and remain competitive.
“We will be happy to pass on the benefit to our borrowers. Though seemed temporary,the initiative is an act of re-balancing towards checking inflation,” he said.
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