Despite Rajan ire, bankers say rates to remain high near-term

Despite RBI Governor using strong words against bankers for not passing on two rate cuts to borrowers, lenders stuck to their guns saying their cost of funds is too high to lower rates, which they see happening over the next two-three months.
"Between April and June, we see a repricing of deposits, which can help us get low cost funds and which in turn can help us lower our lending rates," bankers told reporters at the customary post-policy press conference at RBI here today.
The comments came within hours of Governor Raghuram Rajan dismissing the bankers' alibi of high cost of funds for not cutting their lending rates as "nonsense". He hoped that easing liquidity this month will force them to slash lending rates.

"Their (banks') marginal cost of funding (has) fallen; the notion that it hasn't fallen, is nonsense, it has fallen!," Rajan said in strong remarks against the lenders for not effecting monetary transmission despite sitting on mounts of liquidity.
When sought a response to Rajan's angry reaction, SBI Chairman Arundhati Bhattacharya said, "You have to understand both ways, it takes a little time for the things to pass through.
"And, it is not only the cost of deposits that determines this, the passing through is also determined by the amount of liquidity, the amount of credit demand and competition which also drives rates up or down. There are very many factors and repo is only one of the factors."

She further that while fixing deposit rates banks are fixed on the liability side in the sense that when we take a deposit we take it a particular cost. And, therefore to reprice it we have to ensure our asset base on the basis of marginal costing itself it would be something that if we even think about doing it, it will have to have a very long transition period.
It can be noted that after the two unscheduled cuts to the tune of 0.25 per cent each on January 15 and March 4, only two small banks -- United Bank and State Bank of Travancore -- have cut their lending rates.