May cut lending, deposit rates: bankers

Banks today said they would cut lending rates making home, consumer, corporate and personal loans cheaper after the Reserve Bank slashed short-term lending (repo) and borrowing (reverse repo) rates by 25 basis points each in its annual monetary policy for 2009-10.

"The policy stance of RBI indicates further softening of the interest rates," Oriental Bank of Commerce Executive Director S C Sinha told PTI.

Banks would bring down lending and deposit rates after reviewing their asset liability condition. It may not be immediate but would take some time to respond, he said.

Indian Bank Executive Director A Subramanian said that deposit and lending rates would come down simultaneously. "That is the signal RBI is giving to all banks."

The apex bank cutting down short-term borrowing rate would encourage banks to lend and earn interest income rather parking funds with RBI and earn reverse repo rate, he said.

The Chennai-based bank would take a view on the interest rates in the next few days, Subramanian said.

In its annual credit policy, RBI reduced repo rate to 4.75 per cent and reverse repo to 3.25 per cent with immediate effect, while retaining the other key ratios such as the Cash Reserve Ratio, the percentage of deposits that banks keep with the central bank.

RBI rate cut would lead to softening of effective lending rate, Subramanian said, adding that deposit rates would also be cut simultaneously.

Uco Bank Chairman and Managing Director S K Goel had said that the bank would take a view on the interest rates after the annual credit policy.

The RBI has given enough indication to banks to ease rates, however, private sector banks have been laggard in the responding to the central bank's signals.

While public sector banks have reduced their benchmark prime lending rates (BPLR) as much as 250 basis points post Lehman Brothers crisis in mid-October last year.

RBI has reduced repo rate from 9 per cent in October 2008 to 4.75 per cent now, while it brought down reverse repo rate from 6 per cent in October last year to 3.25 per cent at present.

Yes Bank Chief Economist Shubhada Rao said the complete pass-through of previous rate cuts is yet to fully transmit through lower lending and deposit rates in the banking sector.

Although interest rates have dropped from their peak levels, there remains a scope for rates to decline further, she said.

"We expect this to happen within coming two quarters when the banking sector will be able to re-price their balance sheets on liabilities side followed by assets side," Rao added.

Deutsche Bank Ananth Narayan said combination of high liquidity and forceful message from RBI will probably bring lending rates down.

"On the govt bond side also this combination will work ... We should see bond prices holing up and going up from here," he said.