Your wait for lower EMIs is finally over. Banks are willing to pare their lending rates in next few days following the Reserve Bank of India's (RBI) decision to cut the repo rate by 25 basis points early Thursday.
United Bank of India (UBI) has already announced a reduction in its base rate by 25 basis points and others are set to mirror the move in coming days. "It was certainly a surprise as bankers were expecting RBI to cut repo rate only in February. We have reduced our base rate by 25 basis points to 10 per cent. Our rate cut is effective from February 1," P Srinivas, managing director and chief executive officer of UBI, told Business Standard.
Most bankers echoed a similar view.
State Bank of India (SBI) chairman Arundhati Bhattacharya felt that RBI's action on Thursday will probably begin the much awaited rate cut cycle. "We welcome the 25 basis points repo rate cut by RBI. With global crude and commodity prices expected to be benign, inflationary expectations moderating to single digit, the current disinflationary impetus is likely to be firmly entrenched and unwinding. We thus believe that this cut may be just the beginning of a rate easing cycle," she said.
YES Bank said it will lower its minimum lending rate by the end of this month. "The timing of the rate cut is a pleasant surprise. The banking system was waiting for a (repo) rate cut. Base rate cuts will now start sooner than later. I expect most major banks to cut rates within this month itself. The base rate cut by lenders will at least be in the tune of 25 basis points. Even we are positively inclined to reduce our base rate by up to 25 basis points and it should definitely happen in January itself," Rana Kapoor, managing director and chief executive officer of YES Bank, said.
Bankers said they will review their cost of deposits in next few days and take a decision on lending rate cut.
"If you look at the yield on 10-year government security it has come down sharply. So, the market was also expecting a rate cut since inflation has been coming down. But the expectation was that the rate cut will happen either in February (credit policy) or post budget. So, from the point of view of timing this is a surprise...Bankers have been waiting to see how the cost of funds behaves before they cut their lending rates. I believe, most banks will start taking a view on their lending and deposit rates in next couple of weeks," Arun Kaul, chairman and managing director of UCO Bank, said.
Canara Bank's executive director PS Rawat said the lender's asset-liability committee (ALCO) will meet "in a day or two" to take a call on rate revision.
While a few bankers said that lenders may wait for some time before lowering the loan rates, most agreed that a rate cut was now only a matter of time. "Lending rates will come down but it may happen with a lag effect. Banks will first start reducing deposit rates sharply. There had been some rationalisation that had happened in different maturities in deposit rates in the last quarter but banks were still holding it up to provide for inflation adjusted returns. The rate cut signals that inflation has been tamed and therefore deposit rates will come down first. This will be followed by the lending rate cut," MS Raghavan, chairman and managing director of IDBI Bank, said.
Indian Bank's chairman and managing director TM Bhasin said that while lenders have reduced interest rates selectively on loan products for the festive period, RBI's move will now set the tone for lowering banks' base rate.