Tag: loan rates India

Bank loans may not get cheaper soon

By Atmadip Ray, ET Bureau | 3 May, 2013

KOLKATA: Consumer loans may not get cheaper immediately despite a repo rate cut since banks continued to pay high to depositors to improve a modest collection.

Top bankers said that RBI’s growth direction with repo rate cut has pleased them but the absence of a cut in cash reserve ratio will not allow them to cut lending rates across the spectrum. A reduction in the reserve ratio would have released funds for banks to lend without looking for deposit mobilisation at a high price. Banks are forced to keep rates high to overcome a slow deposit growth.

“A mere repo rate cut will not help us in terms of lowering of lending rates,” Punjab National Bank chairman and managing director KR Kamath said. “One can’t go for drastic reduction of deposit rates as mobilisation has been sluggish. The issue is when it is going to be the right time for a deposit rate cut. Till such time, it will be difficult to reduce lending rates across the board.”

RBI said its assessment of the growth-inflation dynamic does not allow further monetary easing. However, the central bank governor D Subbarao assured banks that it will to actively manage liquidity to reinforce monetary transmission, consistent with the growth-inflation balance.

“The call in reduction in base rate may be taken over a period of time and would depend upon, how the deposit rates move,” Corporation Bank chief Ajai Kumar said. “In the present scenario where deposit mobilisation is still not picking up, it would be too early to comment on lending rate cut.”

A 25 basis point cut in repo rate, the rate at which RBI lends to bank, will reduce the cost of fund only for borrower banks. But banks which park their excess fund with the central bank will now earn 25 basis point less as reverse repo rate has been lowered by similar extent.

Uco Bank chief Arun Kaul said that cutting rates would depend upon cost of funds and how much it comes down in the near future. These lenders said they will try to adjust rates for some selective sectors with strong growth links.

“We need to do a fine balancing act for lowering lending rates for small sectors,” United Bank of India chairperson and managing director Archana Bhargava said.

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