You may have to wait longer for cheaper loans | india | Hindustan Times
Today in New Delhi, India
Dec 12, 2017-Tuesday
-°C
New Delhi
  • Humidity
    -
  • Wind
    -

You may have to wait longer for cheaper loans

The RBI on Saturday cut two key rates, signalling a further movement towards lower interest rates but bankers said it would have only a limited impact and also remained non-committal on when they would reduce lending rates, report Rajendra Palande & Devraj Uchil.

india Updated: Dec 07, 2008 01:26 IST

You may have to wait a little while longer before home, auto and personal loans come down to a level you consider affordable. The Reserve Bank of India (RBI) on Saturday cut two key rates, signalling a further movement towards lower interest rates.

Why interest rates won’t fall too much
Deposit rates are still ruling high.
Limited headroom to cut deposit rates. Therefore, banks can cut lending rates only up to a point.
Bottom line: Don’t expect a sharp fall in lending rates any time soon.

But bankers said it would have only a limited impact and also remained non-committal on when they would reduce lending rates.

RBI lowered the repo rate, its short-term lending rate, for the third time in less than two months, by 100 basis points (bps) to 6.5 per cent. This is its lowest level in two-and-a-half years. Incidentally, 100 bps make one percentage point.

Reacting to this, T.S. Narayanasami, chairman, Bank of India and Indian Banks’ Association, and member of the finance ministry’s liquidity committee, said: “We cannot specify the date from when interest rates will start falling.”

RBI also cut the reverse repo rate, the overnight rate at which it borrows from banks, by 100 bps, to 5 per cent, a three-year low. The new rates will take effect from Monday, December 8.

“Today’s measures are positive and decisive signals for banks to cut interest rates,” RBI governor D. Subbarao said.

But deposit rates have to fall before banks can cut lending rates. Ashish Parthasarthy, head of trading, HDFC Bank, said: “The loan-to-deposit ratio is quite high at 75 per cent. This will prevent a sharp reduction in interest rates on deposits and, as a consequence, on loans.”

Chanda Kochhar, joint managing director ICICI Bank, too, stopped short of saying when her bank would cut rates. “ICICI Bank continues to monitor interest rates on a daily basis and will take necessary measures accordingly,” she said.

Besides cutting the two key rates, RBI also announced a Rs 11,000-crore refinance facility for the National Housing Bank (NHB) and the Small Industries Development Bank of India (Sidbi). The central bank, however, kept the Cash Reserve Ratio, the percentage of deposits that banks are mandated to keep with it, unchanged.

The measures announced on Saturday will infuse additional liquidity of Rs 3 lakh crore into the Indian financial system.

RBI also announced a few other steps to get the economy back on track. It allowed certain categories of banks, which had issued foreign currency convertible bonds, to buy them back as they are now available at attractive valuations. And exporters, who have been badly hit by the global meltdown, will now get access to subsidized credit.