RBI monetary policy: Lenders not ready to cut you slack yet

MUMBAI: Indian lenders have signalled that borrowers may have to wait for a while before they cut interest rates as deposit rates are still high. The Reserve Bank of India on Tuesday cut the cash reserve ratio , or CRR — the slice of deposits that banks have to mandatorily park with the central bank — by 50 basis points, fuelling expectations of a cut in interest rates by lenders.

But most banks have indicated that they would prefer to wait for rates on term deposits to fall and their costs to come down before considering cutting rates on loans. The comfort for borrowers in the near term is that interest rates have peaked and could only start moving southwards from the next quarter.

“There could be some softening of lending rates in some select pockets,” Pratip Chaudhuri , chairman, State Bank of India, India’s largest bank, said. He said that the bank could look at lowering rates in sectors in which there are higher demand for loans and lower default levels. HDFC Bank’s MD and CEO Aditya Puri said that the RBI move reinforces that interest rates are on a downward trend.

“But, if you want an immediate satisfaction, that would take some time. In general, the cost of money should come down first,” he said. BA Prabhakar, CMD of Andhra Bank echoed similar views by saying that banks may not be able to lower lending rates because deposit rates are high. Banks have raised lending rates by almost 300 bps over the past 18 months as RBI raised rates to cool inflation.

Rising interest rates have especially hurt home loan borrowers, small businessmen and students who have taken education loans. SBI’s base rate — the minimum rate charged to bestrated customer — is now 10%. “Interest rates have peaked, but it is difficult to say when it will come down,” said Chanda Kochhar, MD and CEO of ICICI Bank. Even as CRR reduction will lead to freeing of Rs 36,000 crore, banks continue to borrow over Rs 1 lakh crore daily from RBI.

Pointing this out, S Raman , CMD of Canara Bank, said, “The measure is aimed more towards easing liquidity, but it could be a starting point of change in sentiments for business.”

Deposit Payouts Safe for Now

Banks are unlikely to lower deposit rates before this fiscal end, although, they conceded that rates have peaked, providing a window of opportunity for investors to lock into relatively high fixed rates of interest on term deposits . SBI chief Pratip Chaudhuri said cutting deposit rates will depend on the kind of competing instruments being offered. “One has to be really circumspect about cutting deposit rates,” he said.

According to Andhra Bank, CMD, BA Prabhakar, “Chunks of deposits come up for renewal around this time and a cut will work as a disincentive for rollover.”