RBI policy review: Bankers rule out cut in interest rate this month

Lending rate is unlikely to be cut this month as bankers said that they will wait for further signals from RBI before lowering rates for home and auto loans.

Mumbai: Lending rate is unlikely to be cut this month as bankers said that they will wait for further signals from RBI before lowering rates for home and auto loans.

RBI on Tuesday slashed short-term lending rate by 0.25 percent to 7.5 percent, which the bankers read as not enough for an immediate cut in their lending rates.

Accordingly, the short-term borrowing rate would also come down to 6.5 percent. However, the Cash Reserve Ratio (CRR) has been retained at 4 percent on the expectation that government will start spending more.

"Banks would cut the lending rate when deposit rates, both short-term and long-term, start showing a decline. Base rate may not be cut at this point of time," Indian Overseas Bank Chairman and Managing Director M Narendra said.

Status quo will be maintained till the end of March and thereafter the bank would assess the liquidity condition and take a view on the rate cut, he said.

According to Central Bank of India Chairman and Managing Director M V Tanksale, the reduction is on expected lines and it shows that RBI is supportive of growth.

"This certainly will reduce the cost of borrowing for the banks but I cannot say how it is going to shape up in the reduction of the base rate. We will discuss this issue with our ALCO (Asset Liability Committee) as we have upwardly revised our deposit rates recently," he said.

There is no disappointment on the CRR cut as the liquidity deficit in the system is not much and the credit growth is not that significant, he added.

However, SBI Chairman Pratip Chaudhuri yesterday had said his bank has been passing on the benefit of policy rate cut.

"We have always done that," he said when asked if the bank would pass on the benefit of the rate cut.

"Of course, it would be commensurate with the rate cut because its competitive scenario, who can hold it back," Chaudhuri had said.

"Immediate transmission before the end of March, I think will not be possible from the bankers side," Bank of India Chairperson and Managing Director V R Iyer said.

Terming the monetary action as on expected lines, Bank of Baroda Chairman and Manging Director S S Mundra said: "There is certain direction which is visible to us. I don't see any immediate action. But come April or mid-April there would be much clarity on liquidity position."

The RBI reduced repo rate twice by 0.25 percent each in less than one and half months.

In its third quarter policy review on January 29, RBI had lowered key repo rate by 0.25 percent. It also had injected Rs 18,000 crore liquidity through similar reduction of Cash Reserve Ratio (CRR).

The repo rate, at which RBI lends to banks, was eased after a gap of nine months as the central bank fought the stubbornly high inflation through tight money policy, leading to high interest rate regime.

Following easing of monetary policy by the RBI, several lenders, including State Bank of India (SBI), Indian Overseas Bank, Bank of Baroda and IDBI Bank had cut lending rates.