Mumbai: Borrowers could see better days ahead as banks are expected to cut lending rates following the RBI's decision to unlock Rs 17,000 crore by slashing cash reserve ratio (CRR) by 0.25 percent.
Soon after the Reserve Bank unveiled its mid-quarter review of the monetary policy, several bankers hinted that they may reduce lending rates in the coming days.
Commenting on RBI's action, State Bank of India (SBI) Chairman Pratip Chaudhuri said the bank will review its rates in the light of policy decision. The asset liability committee (ALCO) of bank is expected to meet soon to take a view on rate revision.
"It is a very positive move. I think the RBI has given a clear signal that they (banks) are willing to respond and that they (banks) have taken note of the signs of deceleration in economy," Chaudhuri said.
RBI on Monday announced cut in CRR, the percentage of deposits banks keep with central bank, to 4.5 percent.
However, repo rate, at which the central bank lends to the banks, would remain unchanged at 8 percent. The reverse repo, at which it absorbs excess liquidity through borrowings from banks, remains at 7 percent.
Terming the policy action strongly positive for the markets, Bank of Baroda Chairman and Managing Director M D Mallya said as much as Rs 720 crore of additional fund would come to the bank.
The liquidity infusion would ensure adequate flow of credit to productive sectors of the economy, Mallya said, adding that the bank's ALCO would meet soon to take stock of the situation.
Oriental Bank of Commerce (OBC) Chairman and Managing Director S L Bansal also said that the bank would take a view on the rate revision in its ALCO meeting soon.
"I am of the opinion that there will be fall in the interest rate," Bansal said, adding that the lending rate would moderate further.
OBC has already cut its base rate or the minimum lending rate by 0.1 percent to 10.40 percent last month.
According to Central Bank of India Chairman and Managing Director M V Tanksale the CRR cut will infuse Rs 515 crore into the bank.
He said, however, that he did not anticipate cut in the base rate. There could be moderation in certain segments, he added.
Credit growth is expected to pick up during the upcoming festival season, Tanksale said.
On the similar lines, Dena Bank Chairperson Nupur Mitra said the bank will decide about base rate cut in the committee's meeting.
RBI's action will definitely help in the credit growth, she added.
Indian Overseas Bank (IOB) Executive Director A K Bansal said, "We will take a call in ALCO soon taking into consideration liquidity condition and credit offtake."
If credit picks up further from here on, he said, there is a possibility of moderation in the interest rate.
It was not a surprise that RBI maintained status-quo on policy rates and provided a token 0.25 percent cut in CRR, said Moses Harding, IndusInd Bank head (ALCO and economic & market research).
It was a balancing act with one eye on inflation and the other on the government's action on pushing reforms, and fiscal consolidation, he said.
"The shorter end of the rate curve will benefit the most while medium to longer is expected to stay steady," Harding said.
Terming the reduction in CRR a "positive step" ICICI Bank CEO and Managing Director Chanda Kochhar said it will help ensure that systemic liquidity remains in the comfort zone.
The RBI has been forward-looking to factor in the impact of tax outflows as also a pick up in liquidity requirements in the "busy season" in its assessment of liquidity, she said.
While the steps taken recently by the government are positive for fiscal consolidation, the central bank wants to see how the deficit situation and inflation evolve before undertaking further cuts, Kochhar said.
Given the comfortable liquidity and the recent reduction in deposit rates by banks, interest rates in general could be expected to trend downwards gradually, she said.
"However, we will have to continue to keep an eye on funding costs given the level of CASA deposit growth in the system," she added.