Lending, deposit rates unlikely to fall, say bankers

MUMBAI, MARCH 19:  

The repo rate cut by the Reserve Bank of India is unlikely to translate into deposit and lending rate cuts by banks, say bankers and economists.

In its mid-quarter monetary policy review, the RBI cut the repo rate (the interest rate at which banks borrow short-term funds from RBI) by 25 basis points to 7.50 per cent from 7.75 per cent.

With deposit growth trailing credit growth, bankers are of the view that the time is not ripe for cutting the deposit rates.

Here is what the bankers said on the RBI policy:

The reduction in repo rate by 25 basis points indicates continued focus on growth. At the same time, RBI's commitment towards maintaining adequate liquidity in the system is important in the context of continued smooth functioning of markets. Today's policy action together with the measures taken by the Government on the fiscal and investment fronts indicate continued overall policy support for revival in economic growth. — Chanda Kochhar, MD and CEO, ICICI Bank

Liquidity in the banking system is tight in the run-up to the financial year-end. Moreover, lot of bulk deposits mature in March. Hence, banks will want to retain deposits due to year-end considerations. Further, credit typically picks up during this time of the year. Given this situation, there is little scope to either cut deposit rates or lending rates. — R. K. Bansal, Executive Director, IDBI Bank

The RBI’s decision to go in for another round of policy rate cuts was aptly timed and was almost indispensable to revive the confidence of industry. Banks credit to industry has witnessed moderation. The key for industry is for lending rates to come down but this would happen only when banks are comfortable with deposits and deposit rates come down. We believe banks will not cut interest rates in a hurry.” — Naina Lal Kidwai, Country Head, HSBC India and President, FICCI

The positive move of the RBI will add to the rebound of confidence in industry and investor sentiment. However, the overall liquidity in the system will increase only after the turn of the month. And, the policy transmission by the banks on reduction of the base rate may take place in April 2013, after liquidity improves. The deposit and short-term money market rates are expected to be under pressure till end of March 2013. — M. Narendra, CMD, Indian Overseas Bank

Banks are unlikely to respond to repo rate cut immediately as funding costs remain elevated. However, seasonal improvement in liquidity in Q1 FY14 could see banks cut lending rates. We expect effective lending rate reductions of 50-75 bps in response to 100 bps of repo rate cuts in FY 2014. — Abheek Barua, Chief Economist, HDFC Bank

The monetary policy statement remained relatively more hawkish than one would have expected in the midst of a rate-cutting cycle. This clearly re-establishes the concerns in the minds of the RBI on the stability of the economy. — Indranil Pan, Chief Economist, Kotak Mahindra Bank

Owing to the decline in core inflation and sluggish growth, a rate cut of at least 25 bps, if not 50 bps, was expected. So, the policy announcement was very much on expected lines. One thing is clear: More focus is going to be given to growth in the coming policies, and if inflation is further contained, more rate cuts can be expected. — V. A. Joseph, MD and CEO, South Indian Bank

The rate cut will help kick-start the economy. With GDP growth at a measly 4.5 per cent in the third quarter of this fiscal, the rate cut will go a long way in boosting the sentiment of consumers and corporate India. The impact of this will be clearly seen in the coming quarters, where it would steadily stimulate demand and investment. — George Alexander Muthoot, MD, Muthoot Finance

http://www.thehindubusinessline.com/industry-and-economy/banking/lending-deposit-rates-unlikely-to-fall-say-bankers/article4526453.ece