Cut Rates: Patel to Banks
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