Reduction in lending rates to be in phases: P Nanda Kumaran

Interview with managing director, State Bank of Travencore

State Bank of Travancore (SBT), a major partner in the State Bank’s group, is likely to reduce its lending rates by 50 basis points, according to P Nanda Kumaran, managing director. This is following the reduction in the bank rates by the Reserve Bank of India (RBI) on April 17. SBT had already reduced the rates on domestic/NRE term deposits. In an interview, Kumaran tells George Joseph that the reduction in the lending rates would come into being after the announcement of results for the 2011-12 financial year. Edited excerpts:

When can we expect a reduction in rates and to what extent?
We are planning to reduce the rates by 50 basis points, not in one stroke, but in phases. We are watching how the industry is responding to the new scenario and we will follow accordingly. The customers of the bank can expect the reduction in two phases. This will take place after the announcement of our financial results.

Will the reduction be 75-100 basis points?
I don’t think so. It depends on various factors and varies from bank to bank. It is also linked with the cost of funds of the banks. Any ways, we can expect up to 50 basis points. We will implement this in the next three-month period.

Why have you reduced the deposit rates immediately after the RBI announcement?
We have only aligned our rates at par with the market rates. We are looking at how stability on the interest rates is evolving in the market on both lending and deposits rates. So, we have made the reduction in rates on domestic and NRE deposits in line with the market.

Do you expect a further reduction in bank rates and a low interest rates’ regime in future?
Yes. It will happen. I am not sure about the short-term, but the rates will definitely come down in the long-term.

Why is it so?
The Indian economy is now going through a favourable condition and is stabilising. The growth in GDP and the overall performance of the economy would be positive, which definitely will attract lower interest rates in the long run. The economic activity is more vibrant now after a pretty long bad phase and it will make positive results in various sectors.

Do you have any concerns over the rising inflation and the increase in prices of petroleum products?
Of course, these are warning signals. Even the RBI has pointed out on the rise in petroleum products’ prices. It is a serious concern of the economy. Our economy is now on a promising phase and I am optimistic about the positive signals in our economy. So, I expect a low interest regime, especially in the long run.