Cut Rates: Pa­tel to Banks

The Economic Times - - Finance & Commodities - Our Bureau Macro Scene

Mum­bai: The Re­serve Bank of In­dia (RBI) hasput­theonu­son­bankstolower­bor­row­ing costs for com­pa­nies and in­di­vid­u­als as it said that they have not re­duced their lend­ing rates com­men­su­rate to the mag­ni­tude of the rate cuts ef­fected by the cen­tral bank.

Ad­dress­ing the me­dia soon af­ter the mon­e­tary pol­icy an­nounce­ment, RBI gov­er­nor Ur­jit Pa­tel made a case for banks to cut lend­ing rates. “There is still scope for lend­ing rates to come down since our pol­icy rates have come down by 175 ba­sis points since Jan­uary 2015 while the weigh­tage av­er­age lend­ing rates have fallen by 80 to 85 ba­sis points,” Ur­jit Pa­tel said in re­sponse to a ques­tion on whether he ex­pects banks to lower lend­ing rates. On Wed­nes­day, RBI kept pol­icy rates un­changed at 6.25%.

This­come­sas­good­news­fors­mall-tick­et­bor­row­ers such as home buy­ers, stu­dents and farm­ers. These com­ments from Pa­tel come at a time when a num­ber of banks have sharply re­duced the mar­ginal cost of lend­ing rate or MCLR –– the floor rate at which they lend to their best bor­row­ers post-de­mon­eti­sa­tion. SBI low­ered MCLR by 90 bps from 8.9% to 8% fromJan­uary1.“Idon’tknowwhich­bank­the gov­er­nor is re­fer­ring to. But SBI has low­ered MCLR by 200 bps which is much more than On Wed­nes­day, RBI kept pol­icy rates un­changed at 6.25% SBI has low­ered MCLR by 90 bps from 8.90% to 8% from Jan 1

RBI’s 175 bps cut,” SBI chair­man Arund­hati Bhat­tacharya told ET. She said that go­ing for­ward, banks would ad­just de­posits rates de­pend­ing on the out­flow of de­posits (due to lift­ing of cash with­drawal limit) and credit pick up. How­ever, most banks have not cut base rate (the floor lend­ing rates) and nearly 50% of the loans book is priced on base rate.

“Thankstode­mon­eti­sa­tion,banksare­flooded with de­posits, so lend­ing rates have come down and transmission of pol­icy rates have taken place,” said Vi­ral Acharya, deputy gov­er­nor, RBI. In the past, RBI had of­ten pointed out­that­banksares­low­in­passin­gonor­trans­mit­ting the cut in pol­icy rates to end bor­row­ers but are quick in rais­ing rates when the cy­cle re­verses. “The abil­ity to cut rates is a func­tion of lower cost of funds,” said Ra­jiv Anand, ex­ec­u­tive di­rec­tor, Axis Bank. “Dur­ing de­mon­eti­sa­tion, a lot of low-cost money came in CASA de­posits and as a re- sult, you saw low­er­ing of rates. If to­mor­row some of this low cost money moves out it will be dif­fi­cult to cut rates.”

TheMone­taryPol­i­cyCom­mit­tee(MPC)was of the view that timely transmission of pol­icy rates to bank’s lend­ing rates will be con­sid­er­ably im­proved if the bank­ing sec­tor’s bad loansar­ere­solved­more­quicklyan­d­ef­fi­ciently and if re­cap­i­tal­i­sa­tion of the bank­ing sec­tor hap­pens faster. It also said that transmission can also take place if the for­mula for ad­just­ments in the in­ter­est rates on small sav­ings schemes to changes in yields on gov­ern­ment se­cu­ri­ties of cor­re­spond­ing ma­tu­rity is fully im­ple­mented.

There is still scope for lend­ing rates to come down since our pol­icy rates have come down by 175 ba­sis points since Jan­uary 2015 while the weigh­tage av­er­age lend­ing rates have fallen by 80 to 85 ba­sis points

Gov­er­nor, RBI

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