Banks may not cut rates due to SLR cut

MUMBAI: Banks will not cut their lending and deposit rates following a 1% cut in the statutory liquidity ratio (SLR) by Reserve Bank of India on Tuesday. The central bank lowered SLR - a portion of deposits that banks have to mandatorily invest in government securities- to 23%.

"The cut in SLR will have no impact on lending rates or the deposits rates. we expect more action from RBI to initiate a cut in rate," said R K Bakshi, executive director of Bank of Baroda. The cut in SLR came as a surprise as most banks are holding excess government securities than mandated. Bankers say that only a cut in policy rate like repo rate and cash reserve ratio would have prompted them to lower deposit and lending rates.

C V R Rajendran, executive director of Bank of Maharashtra says that lower demand for credit may force banks to cut the lending rates. "A cut in SLR gives comfort to a lenders that if credit growth happens. They can sell some government securities to create immediate liquidity," he said. Banks are holding 2-3% excess securities than mandated since there is lackluster demand for credit so far.

However according to Ashok Dutt, executive director of Dena Bank the banks may cut lending rates if deposit rates come down. "Deposit rates are softening and if it continues banks may cut lending rates as well. The SLR cut is only a measure to provide liquidity if it suddenly dries up."

SBI has pegged its base rate at 10% while most other banks have pegged it in the range of 10.50 to 10.75%.