RBI cuts repo rate, banks hint at lower lending rates after second prod
Banks hinted they could cut lending rates as early as next month, after a second interest rate cut in two months heaped pressure on lenders that have largely kept rates unchanged, citing weak credit demand and a lack of liquidity.business Updated: Mar 05, 2015 01:14 IST
Expect your EMIs to come down soon as banks indicated they would take a call on reducing lending rates within the next few days, soon after RBI sprung a surprise 25 basis points (bps) cut in the repo rate.
After announcing the rate cut, RBI governor Raghuram Rajan said in a conference call to analysts that he sees banks passing on the benefit of lower rates to customers shortly. “My hope is that over the span of the next few weeks, as we move in to the new fiscal, we will see more transmission into lower interest rate... Banks tend to be a little faster in raising rates rather than cutting rates. I have no doubt that the pressure of the two rate cuts over time will feed into lower rates.”
Lenders said the rate cut will provide the much-needed boost to the economy.
“Our bank will take an appropriate call on a cut in base rate by looking at all evolving circumstances,” said Arundhati Bhattacharya, chairperson, State Bank of India.
“The repo rate cut is a welcome step that demonstrates RBI’s comfort with the inflation outlook and its responsiveness to emerging indicators.” ICICI Bank MD and CEO Chanda Kochhar said. “It should help move the economy forward on a positive growth path.”
“With the monetary and fiscal policy deciding to work in tandem for the cause of inflation control, this is the right time to cut policy rates,” said TM Bhasin, chairman, Indian Banks Association.
Most lenders said consumers would benefit from the rate cut, but preferred to take the cautious approach.
“It will be passed on,” said Sushil Muhnot, CMD at Bank of Maharashtra. “Maybe in the beginning of the next fiscal year.”
“My base rate is a function of cost of funds,” said CVR Rajendran, CMD, Andhra Bank. “Unless the cost of funds drop, I cannot reduce the base rate.”
“Banks will discuss the issue with their asset-liability committee and come at a decision,” said Srinivas Acharya, MD, Sundaram BNP Paribas Home Finance.
When RBI reduced the repo rate by 25 bps in January, most banks decided to hold rate cuts.
(with agency inputs)