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Borrowers will need to wait 3-6 months for rates to come down

Banks feel that significant transmission of rate cuts will start after one or two quarters

Tinesh Bhasin  |  Mumbai 

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Borrowers will need to wait for three to six months before they see any meaningful rate cut from banks. After reducing the key policy rates on Tuesday by 25 basis points, the Governor said that he hopes the recent cuts in rates will lead to lower and ultimately will reduce borrowing rates.

Since January 2015, Reserve Bank of India (RBI) has reduced policy rates by 150 basis points. But banks have not revised interest rates downwards in the same proportion as the regulator.

But none of the banks have reduced interest rates on loans following RBI’s rate cut. B Sriram, managing director, State Bank of India, had said banks would need six more months to adjust to the system, which would complete one year in March 2017. After this there would be scope for more transmission. But he had also added that the reduction in the by 10 bps would give room to reduce and cost of funds, and further the revision in lending rates would follow.

The has introduced the new marginal cost of lending rate (MCLR) methodology for setting interest rates since April. This method takes into account cost of funds by banks both from deposits as well as market borrowings. The governor said: “I agree that the transmission to bank borrowers has been less than what anyone of us would have liked it to be. And we are hoping that over the next quarter or two, also keeping in mind that the government has also reduced the rate…the calculation itself will throw up more transmission,” Patel said.

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Borrowers will need to wait 3-6 months for rates to come down

Banks feel that significant transmission of rate cuts will start after one or two quarters

Banks feel that significant transmission of rate cuts will start after one or two quarters Borrowers will need to wait for three to six months before they see any meaningful rate cut from banks. After reducing the key policy rates on Tuesday by 25 basis points, the Governor said that he hopes the recent cuts in rates will lead to lower and ultimately will reduce borrowing rates.

Since January 2015, Reserve Bank of India (RBI) has reduced policy rates by 150 basis points. But banks have not revised interest rates downwards in the same proportion as the regulator.

But none of the banks have reduced interest rates on loans following RBI’s rate cut. B Sriram, managing director, State Bank of India, had said banks would need six more months to adjust to the system, which would complete one year in March 2017. After this there would be scope for more transmission. But he had also added that the reduction in the by 10 bps would give room to reduce and cost of funds, and further the revision in lending rates would follow.

The has introduced the new marginal cost of lending rate (MCLR) methodology for setting interest rates since April. This method takes into account cost of funds by banks both from deposits as well as market borrowings. The governor said: “I agree that the transmission to bank borrowers has been less than what anyone of us would have liked it to be. And we are hoping that over the next quarter or two, also keeping in mind that the government has also reduced the rate…the calculation itself will throw up more transmission,” Patel said.
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Business Standard
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Borrowers will need to wait 3-6 months for rates to come down

Banks feel that significant transmission of rate cuts will start after one or two quarters

Borrowers will need to wait for three to six months before they see any meaningful rate cut from banks. After reducing the key policy rates on Tuesday by 25 basis points, the Governor said that he hopes the recent cuts in rates will lead to lower and ultimately will reduce borrowing rates.

Since January 2015, Reserve Bank of India (RBI) has reduced policy rates by 150 basis points. But banks have not revised interest rates downwards in the same proportion as the regulator.

But none of the banks have reduced interest rates on loans following RBI’s rate cut. B Sriram, managing director, State Bank of India, had said banks would need six more months to adjust to the system, which would complete one year in March 2017. After this there would be scope for more transmission. But he had also added that the reduction in the by 10 bps would give room to reduce and cost of funds, and further the revision in lending rates would follow.

The has introduced the new marginal cost of lending rate (MCLR) methodology for setting interest rates since April. This method takes into account cost of funds by banks both from deposits as well as market borrowings. The governor said: “I agree that the transmission to bank borrowers has been less than what anyone of us would have liked it to be. And we are hoping that over the next quarter or two, also keeping in mind that the government has also reduced the rate…the calculation itself will throw up more transmission,” Patel said.

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Business Standard
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