RBI won’t, but top banks reduce rates
Nudged by RBI, the country's biggest bank SBI on Tuesday cut base lending rate by 0.15 percentage point to 9.85%, becoming the first major lender to ease the rate in many months.business Updated: Apr 08, 2015 00:16 IST
Reserve Bank of India governor Raghuram Rajan kept key lending rates unchanged Tuesday but told banks in no uncertain terms to pass on the benefits of the two previous cuts to customers.
“I do not see an environment where credit growth is tepid. Banks are sitting on money, so to speak, and their marginal cost of funding has fallen. The notion that it hasn't fallen is nonsense,” Rajan said after presenting the new financial year’s first bi-monthly monetary policy review.
Rajan said he was confident banks would eventually cut rates because of competitive pressures "and the sooner they do, the better it will be for the economy".
Within hours, three of the country’s largest lenders —State Bank of India (SBI), ICICI Bank and HDFC Bank —cut their base lending rates, rekindling hopes of millions of home-loan borrowers that their EMIs will start falling.
While SBI and HDFC Bank cut their lending rates by 0.15 percentage points to 9.85%, ICICI Bank followed suit with a 0.25 percentage point cut in its base rate — the floor rate to which all lending rates are linked — by 0.25 percentage points to 9.75%.
"I think there is an elbow room, but it all depends on credit growth pick up. We really want to see that happening,” SBI chairperson Arundhati Bhattacharya said.
Both SBI and ICICI Bank's new lending rates are effective April 10, while HDFC Bank’s will kick-in from April 13.
Banks are expected to announce lower floating home-loan rates, which move in tandem with base rates, bringing cheer to consumers paying large parts of their income every month towards repaying home loans.
Fixed deposit returns, however, could take a hit, with banks likely to trim deposit rates to bring down costs.
Rajan, retained the repo rate —the rate at which banks borrow from RBI — at 7.5%, ignoring pleas from business leaders for a third rate cut in 2015.
The central bank had cut the repo rate by 0.50 percentage points in two tranches in January and March.
The RBI also projected that India’s real (inflation adjusted) GDP will grow at 7.8% in 2015-16, higher than the estimated 7.5% growth rate of 2014-15, but lower than the government’s 2015-16 estimate of 8-8.5% in 2015.
The RBI typically is conservative in its outlook for the economy compared to the government.
Retail inflation would likely fall to 4% by August but could rise to 5.8% by March 2016, the RBI said. Insufficient summer rains and global oil prices could push up prices.