SBI, HDFC Bank, ICICI Bank cut lending rate; home, auto loans to get cheaper
SBI and HDFC Bank have cut rates by a token 0.15 per cent and ICICI Bank has slashed its lending rate by 0.25 per cent.
Mumbai: Nudged by the Reserve Bank of India, leading banks, State Bank of India, ICICI Bank and HDFC Bank, on Tuesday cut their lending rates. While SBI and HDFC Bank cut rates by a token 0.15 per cent, ICICI Bank slashed its lending rate by 0.25 per cent after the central bank maintained status quo on policy rate but termed as "nonsense" lenders' claim that cost of funds was still high.
The action of the two banks could have a snowballing effect forcing others to follow suit, a move that can bring relief to corporate and retail borrowers including of home and auto loans.
The lowering of the base lending rate the banks was announced hours after a war of words erupted between RBI Governor Raghuram Rajan and the top bankers, who had appeared reluctant to effect a cut.
After two cuts in three months, the RBI kept the repo rate, at which the central bank lends to banks, unchanged at 7.5 per cent on fears of unseasonal rains impacting food prices.
The cash reserve ratio, which is the amount of deposits parked with the central bank, will remain at 4 per cent. Bank rate has also been retained at 8.5 per cent.
"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.
After his announcement and plain-speaking, leading bankers including SBI Chairman Arundhati Bhattacharya initially maintained that it takes time to lower the lending rates, which could happen in two or three months.
Hours later, SBI took the lead in effecting the rate cut, followed soon by HDFC Bank, whose CEO Aditya Puri had also hinted earlier in the day that it would take some time for rates to be cut by the lenders.
Bhattacharya later said she expected other lenders to follow suit by cutting their rates, as it was a competitive market. She also hinted at lowering of deposit rates.
On possibility of more cuts, she said, "I think there is an elbow room, but it all depends on credit growth pick up. We really want to see that happening."
Promising an "accommodative monetary policy", Rajan on his part said rate cuts going forward would depend on favourable macro economic data and whether banks pass on the benefits of two rate cuts so far on 2015.
While industry expressed unhappiness over the status quo on rates, Rajan said the market dynamics will force banks to lower their interest rates, while adding that sooner they cut the rates, better it would be for the economy.
"Comfortable liquidity conditions should enable banks to transmit the recent reductions in the policy rate into their lending rates, thereby improving financing conditions for the productive sectors of the economy," he said.
Bhattacharya replied to this, saying that "it takes a little time for things to pass through. And, it is not only the cost of deposits that determines this.
"The passing through is also determined by the amount of liquidity, the amount of credit demand and competition which also drives rates up or down. There are very many factors and repo is only one of the factors."
She also said that Indian banks work differently, as compared to the international banks.
Supporting SBI chief, ICICI Bank's Chanda Kochchar said it is not just the repo rate change that determines the base rate change, it depends on cost of funds, deposit mix, liquidity situation and also on credit off take.
However, Bank of India chairperson Vijaylaxmi Iyer said, "The impact of reduction in cost of deposit experienced during the last quarter will encourage banks to pass on the benefit to customers. Retail borrowers may see lower EMIs." RBI has surprised the markets with two rate cuts of 0.25 per cent each outside the scheduled review meetings in 2015, but banks have yet to respond to these policy rate cut by lowering their lending rates.
After the policy announcement, bankers said that most of them will have their asset liability committee meeting week to take a call on interest rates which besides repo rate depends on factors like demand for credit, cost of fund and deposit rates.
"We would see rates coming down as we see easing of interest rate cycle," Bhattacharya said.
On the reluctance of banks to pass on the benefit of 0.50 per cent rate cut announced by the central bank since January, Rajan said, "We are not looking for a specific number (on the bank rate cuts) and saying unless this happens, nothing more will happen. But we want to facilitate the process of transmission."
"Given that there has been very little transmission from rate cut so far... we are waiting to see transmission take place... I have no doubt that this will happen. If it happens sooner it is better for the economy," he told reporters after the announcement of first bi-monthly monetary policy.
"The Reserve Bank will await the transmission by banks of its front-loaded rate reductions... into their lending rates," the central bank said.
HDFC Bank's Puri said the base rate cut is a function of the deposit cost.
"If the deposit cost goes down, then there will be a base rate cut. If it doesn't there won't be any base rate cut. However we feel between now and June, there should be repricing of cost and that will lead to a lower cost of funds for borrowers," he said.
On the issue of bad loans, bankers lobby IBA chairman and Indian Bank head T M Bhasin said the lenders are optimistic that coming quarters will be better than the past few years, while other bankers refused to specify saying this is the silent period.
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