Banks may cut PLR further if RBI takes action: Bankers

MUMBAI: With inflation declining and fiscal discipline improving in the system, the Reserve Bank might reduce its cash reserve ratio and repo rates further enabling banks to lower their lending, deposit rates further, bankers said.

"If the low inflation sustains for a period of two to three weeks, the Reserve Bank might reduce CRR and repo rates further this may give room to banks to cut their interest rates again," leading public sector lender, Bank of India's Chairman and Managing Director, T S Narayanasami here.

India's wholesale price index rate fell sharply to 8.98 per cent for the week ended November 1 on account of declining prices of fuel and manufactured goods after rising close to 13 per cent in the recent past.

To deal with difficult liquidity situation, the RBI slashed cash reserve ratio three times to 5.5 per cent from 9 per cent, statutory liquidity ratio by one per cent to 24 per cent and short-term repo rate twice to 7.5 per cent from 9 per cent.

Through the mix of monetary and fiscal steps, the RBI and Government have infused over Rs 2.5 lakh crore into the banking system to ease the liquidity shortage and to improve credit availability particularly to the needy sectors.

CRR is the percentage of amount banks are required to keep with the central bank. Repo is the rate at which the apex bank lends short term funds to banks. SLR is the amount banks are required to park with the regulator in the form of cash, gold or approved securities.

Kolakata-based state-owned lender, UCO Bank's Chairman and Managing Director, S K Goel said Reserve Bank is expected to cut the CRR further by one per cent and repo rate by 0.5 per cent in the near future.

If further reduction happens, banks are likely to cut their prime lending rates further by 0.5 per cent, Goel said.
Responding to the recent RBI policy measures, majority of the public sector banks, including the country's largest lender, State Bank, had effected a cut in their prime lending rates by 0.75 per cent in the last two weeks.

Many PSBs had also cut their deposit rates also by 0.5 per cent effective from December. "I expect the RBI to cut the CRR by one per cent and a similar quantum of cut in repo rate. This may help banks to cut their BPLRs by 0.5 per cent in the near term," Uco Bank's Chairman and Managing Director, S K Goel said.

Given that global commodity and oil prices are on a downward move and various steps taken by the policy makers to rein in inflation started showing results, India's headline inflation is expected to drop to a tolerable 7 per cent by the end of this fiscal.

Echoing a similar view, public-sector, Union Bank of India's Chirman and Managing Director, M V Nair said banks are likely to review their rates if the cost of funds coming down further.

"If RBI again takes further action, that may have an impact on interest rates. If the cost of funds is coming down further, this may help banks to lower their rates again," M V Nair said.

Though majority of the PSBs have slashed their PLRs following the RBI's latest round of policy actions, private sector lenders in the country are yet to review their interest rate structure.