Gung-ho bankers see rate moderation on the horizon

Lending rates in banks may show some moderation in the coming days, consequent to the RBI’s decision to unlock Rs 17,000 crore by reducing cash reserve ratio (CRR) by 25 basis points (bps) in its mid-quarter review of the monetary policy announced on Monday.

To start with, the country’s premier lender State Bank of India (SBI) Chairman Pratip Chaudhuri said the bank will review its rates in the light of policy decision. “It is a very positive move. I think the RBI has given a clear signal that they (banks) are willing to respond and have taken note of the signs of deceleration in the economy,” said Chaudhuri.

ICICI Bank Managing Director and CEO Chanda Kochhar said the reduction in CRR will help ensure that systemic liquidity remains in the comfort zone. “Given the comfortable liquidity and the recent reduction in deposit rates by banks, interest rates in general could be expected to trend downwards gradually. However, we will have to continue to keep an eye on funding costs, given the level of CASA deposit growth in the system,” Kochhar said.

Terming the policy action as strongly positive for the markets, Bank of Baroda CMD
M D Mallya said that as much as Rs 720 crore of additional funds would come to the bank. The liquidity infusion would ensure adequate flow of credit to productive sectors of the economy, Mallya said adding that the bank’s ALCO would meet soon to take stock of the situation.

According to Central Bank of India CMD M V Tanksale the CRR cut will infuse Rs 515 crore into the bank. However, he did not anticipate cut in the base rate, but feels there could be moderation in certain segments. “Credit growth is expected to pick up during the upcoming festival season,” said Tanksale.

Echoing similarly, Dena Bank Chairperson Nupur Mitra said the bank will decide about base rate cut in the committee’s meeting. RBI’s action will definitely help in the credit growth, she added.

In right direction

CBRE South Asia Ltd CMD Anshuman Magazine said, “The RBI’s decision to cut CRR is a step in the right direction. This move will allow banks to disburse monies in the sagging market. I hope this also has a positive effect on the realty sector and developers find it easier to gain access to funds and that too at lower rates.

Also, home loans might get cheaper.” Rating agency ICRA’s MD and CEO Naresh Takkar said: Given the frontloading of the reduction in the Repo Rate by 50 bps by the RBI in April 2012, we believe that further reduction in the policy rate is unlikely in the immediate term, as the RBI continues to place greater importance on curtailing inflationary expectations. In their view, these measures, while positive, would boost growth with a lag.

“Release of these non-income generating funds will marginally lower the cost of funds for banks. The lower cost of funds can help bring down lending rates on select portfolios, especially in the retail segment, and add momentum to the pick-up in seasonal demand in the second half of the current fiscal,” Rating agency CRISIL said.