Private banks to cut rates

The private and foreign banks operating in the country have assured the government that they will reduce their lending and deposit rates over the next fortnight. This comes a day after their state-owned counterparts made a similar promise to the government.

These banks, in turn, sought help in getting foreign exchange credit lines to support their overseas branches as they are finding it difficult to raise funds abroad due to the ongoing global financial crisis. “They (private banks) will certainly look at cutting lending and deposit rates,” Finance Secretary Arun Ramanathan told reporters after meeting senior executives of these banks.

 

The meeting was also attended by Reserve Bank of India Deputy Governor V Leeladhar, besides senior executives of ICICI Bank, HDFC Bank, Axis Bank, Federal Bank, J&K Bank, HSBC, Citibank and Duetsche Bank.

The private sector banks indicated that a 50-75 basis point cut in lending and deposit rates was likely in the next 15 days. After a meeting with Finance Minister P Chidambaram yesterday, the public sector banks had agreed to cut their prime lending rates by up to 75 basis points.

“Both deposit and lending rates have to come down in the interest of the economy,” said ICICI Bank Joint Managing Director Chanda Kochhar.

M Venugopalan, managing director and chief executive of Kerala-based Federal Bank, said, “We may consider cutting our prime lending rate by 50 basis points”.

The meeting comes in the backdrop of industry’s complaints about the high cost of borrowing and non-availability of credit. India’s central bank had responded to this by cutting the cash reserve ratio (the amount banks are bound to keep with the RBI) by 3.50 percentage points, reducing the statutory liquidity ratio (the amount banks have to maintain with the RBI in the form of cash, gold or approved securities) by 1 percentage point and the repo rate (the rate at which banks borrow from the RBI) by 1.50 percentage point. The government was concerned that these measures had not translated into credit flow to different sectors as banks were hesitant to give fresh credit lines.

Ramanathan said the private banks assured that they would support credit lines to small and medium enterprises, non-banking finance companies and mutual funds.

The banks said foreign exchange lines of credit were necessary to support their overseas branches, said Ramanathan, adding that this would be looked at. The bankers welcomed the steps taken by the RBI and said liquidity was comfortable at the moment. “However, (they said) we have to keep looking at it on a regular basis,” he said.

Also read:
november 5: State-owned banks agree to cut rates