Taking a cue from the Reserve Bank of India, banks are likely to lower lending rates by 50-75 basis points and deposit rates by up to 100 basis points in the coming weeks.
Yes Bank made the first move by announcing a 50-basis-point reduction in its benchmark prime lending rate, or BPLR, bringing it down to 16.5 per cent with effect from Monday. “An immediate cut in deposit rates looks to be difficult for banks… But deposit rates should be lowered 1-1.5 per cent by March 2009,” the bank’s Chief Financial Officer, Rajat Monga, said. An Axis Bank executive said the bank would first look at a 25-50-basis-point reduction in deposit rates before taking a call on the BPLR.
While public sector banks had lowered lending and deposit rates by 75-100 bps earlier, most private players had not reduced lending rates so far, despite rate cuts by RBI.
Economic Affairs Secretary Ashok Chawla today said RBI’s moves “give a clear signal to the banks and to those who have not taken the signals earlier”.
Oriental Bank of Commerce said it might cut lending and deposit rates by 50 basis points. Punjab & Sind Bank is likely to cut deposit rates by 50-75 basis points.
“Banks should reduce lending and deposit rates by up to 100 basis points,” said Punjab National Bank Chairman K C Chakrabarty. PNB has already reduced its BPLR by 150 basis points and Chakrabarty said the bank would consider lowering rates further.
“The signal from RBI is that banks should start lending aggressively to support economic activity. We will take a call on the interest rate after watching the moves of other banks,” said Corporation Bank Chairman & Managing Director J M Garg.
HDFC Bank, which reduced deposit rates by 50-225 basis points earlier this week, said its assets and liability committee (Alco) would meet in 10 days to decide on the next move. “A lending rate cut is possible following our Alco meet,” said the bank’s Deputy Treasurer, Ashish Parthasarathy. The bank’s parent, HDFC, said if the cost of funds came down, it would consider a reduction in lending rates.
ICICI Bank had on Friday lowered the rate on home loans up to Rs 20 lakh by 150 basis points. “Interest rates are expected to soften … ICICI Bank continues to monitor the interest rate on a daily basis and will take measures accordingly,” the bank’s Joint Managing Director and CFO, Chanda Kochhar, said. IndusInd Bank is ready to cut deposit rates immediately, lending rate reduction may come later. “We have to look at the cost of deposits and the asset-liability match before reducing rates,” said its Managing Director & CEO, Romesh Sobti.