Most banks on Tuesday maintained that lending rates will not be cut this month at least and they would rather wait for further signals from the RBI before lowering rates for home and auto loans.
The RBI on Tuesday slashed short-term lending rate by 25 basis points (bps) to 7.5 percent, which the bankers considered it not good enough for an immediate cut in their lending rates.
When asked, the PSU lender Central Bank of India's Chairman and Managing Director MV Tanksale said the reduction is on expected lines and it shows that RBI is supportive of growth.
This would reduce the cost of borrowing for banks but he said, "One cannot say how it is going to shape up in the reduction of the base rate. We will discuss this issue with our ALCO (Asset Liability Committee) as we have upwardly revised our deposit rates recently."
However, he added, "There is no disappointment on the CRR cut as the liquidity deficit in the system is not much and the credit growth is not that significant."
Another PSU lender, Indian Overseas Bank CMD M Narendra said, "Banks would cut the lending rate when deposit rates, both short-term and long-term, start showing a decline. Base rate may not be cut at this point of time." Status quo will be maintained till the end of March and thereafter the bank would assess the liquidity condition and take a view on the rate cut, he added.
HSBC India Country head and FICCI President Naina Lal Kidwai said, "....We do hope that RBI will follow this (rate cut by 25 bps) with further rate cuts even though they have indicated that headroom for further cuts is limited."
Although she maintained that the RBI’s decision to go in for another round of policy rate cuts was very aptly timed and was almost indispensable to revive the confidence of industry. "We believe this would certainly lend some support to the flagging industrial growth," added Kidwai.
Bank of Baroda's Chief Economist Rupa Rege Nitsure said RBI stance remains growth supportive though she does not expect immediate change in lending rates but around mid-April when liquidity situation is likely to return to normalcy, "there is a possibility of transmission happening to some extent."
Although RBI spoke of limited scope for easing even in the January policy but have eased rates this day, pointed out Nitsure adding: ".... So I am surely expecting another baby cut of 25 bps in the May policy which will be influenced by the trajectory of core inflation which is expected to remain low. There is unlikely to be any aggressive easing, but easing will continue at a gradual pace going ahead."
RBI has left the CRR unchanged at 4 per cent and has indicated use of tools like OMOs (Open Market Operations) in its efforts to actively manage liquidity. RBI has reiterated its concern on high current account deficit (CAD) and headline inflation (WPI) numbers which continues to be outside of RBI’s comfort zone of 4-5 per cent.