BanksMayNot­beinHurry to Lower Lend­ing Rates

The Economic Times - - Economy -

Mum­bai: Banks led by the State Bank of In­dia would fol­low the Re­serve Bank of In­dia in low­er­ing in­ter­est rates, but they may not be in a hurry since they just did so when they shifted to a mar­ginal cost based for­mula.

De­posit rates may have to fall fur­ther be­fore the lenders, sad­dled with huge bad loans, re­duce their lend­ing rates. “Banks’ mar­ket bor­row­ings are low, so de­posit rates will need to come off fur­ther for mean­ing­ful trans­mis­sion,” said Arund­hati Bhat­tacharya, chair­man, State Bank of In­dia. RBI gover­nor Raghu­ram Ra­jan, who cut pol­icy rate by 25 ba­sis points on Tues­day, said the lend­ing rates - un­der the new sys­tem MCLR – have fallen by 25 ba­sis points. This he said that was based on the MCLR rate an­nounced by 26 largest banks which ac­count for 83% of the mar­ket share.

“This is im­por­tant be­cause it means an ac­tual rate cut to the bor­rower of 25 to 50 bps even be­fore today’s rate cut. Put dif­fer­ently pol­icy ac­tion is sig­nif­i­cantly greater today than just an­other 25 bps rate cut. Bor­row­ing is now sig­nif­i­cantly cheaper and it will con­tinue to get so,” said Ra­jan.

The State Bank of In­dia, which has one-fifth of the mar­ket share, of­fers home­loanat9.40%un­der­theMCLR sys­tem against 9.50% un­der the base rate sys­tem.

Speak­ing to ET, Rakesh Sharma, MD of Ca­nara Bank, said that he ex­pected lend­ing and de­posit rates to come down fur­ther in the next three months. “Due to MCLR, trans­mis­sion of pol­icy will be faster. This is be­cause the re­duc­tion in the rate will be ap­pli­ca­ble only for the new bor­row­ers un­like in base rate sys­tem when the banks had to re­duce rates for all bor­row­ers,” said Sharma.

The fact that there will be a time lag is unan­i­mous. Mel­wyn Rego, MD of Bank of In­dia, said, “Repo rate cut will re­sult in soft­en­ing of MCLR with a shorter time lag as com­pared to the base rate method­ol­ogy.”

“As MCLR finds its way in the next two months, we will have more rate cuts. Don’t look at it as a 25 ba­sis points cut but com­pos­ite of a rate cut when it all adds up. Bor­row­ing rates are com­ing down sig­nif­i­cantly in this econ­omy,” said Ra­jan

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.