Loans unlikely to get cheaper any time soon, but your deposits may earn less

MUMBAI: Borrowing costs may not fall any time soon for those aspiring to buy a car or a home, but deposit rates have alredy begun to come down, with the State Bank of India slashing rates on select tenors, after the Reserve Bank of India kept policy rates unchanged on Tuesday.

“There is no change (in loan rates) immediately on the cards. But that does not mean one will have to wait for a year,” said Chanda Kochhar, MD & CEO of ICICI Bank, the largest private sector bank. Arundhati Bhattacharya, chairman of State Bank of India, the country’s largest bank, also gave some hope to borrowers.

“The way the monetary policy has been put out this time, the tone seems to be dovish as compared to the March tone,” she said speaking to media after meeting RBI governor Raghuram Rajan.

“The benchmark rate (base rate) is unlikely to come down immediately because credit demand is very subdued and liquidity is not an issue,” said BK Batra, deputy managing director of IDBI Bank. “But lending rates over the last one year have come down without any lowering of base rate. Today, a triple-A corporate is in a better position to borrow short-term money at 10-25 basis points over the base rate against 50 to 100 bps over the base rate a year ago,” he said. IDBI Bank’s base rate is pegged at 10.25%. SBI and ICICI Bank have pegged their base rate at 10%.

“Credit has not picked up and the system has sufficient liquidity. Corporates are having various avenues to raise funds and investment climate is yet to turn around,” said TM Bhasin, chairman of the Indian Banks Association and chairman and managing director of Indian Bank. “Going forward, banks govdone by some large banks,” he said.

However, ICICI Bank’s Kochhar feels bankers will have to bear in mind financial instruments that are competing with deposits before lowering rates. “Today, even deposits are competing with many other financial instructions... You have to see where the consumers have options,” she said.

Aditya Puri, managing director and CEO of HDFC Bank, said that both lending and deposit rates are a function of credit demand. “At this point of time, the credit demand is not exceedingly healthy. If credit demand picks up, you won’t see lowering of deposit rates. If it does not pick up and there is a lowering of deposit rates, you can possibly see some reduction of loan rates,” he said. may reduce deposit rates as