Mumbai: State-run IDBI Bank is witnessing some pressure on margins due to continuing high cost of funds and its decision to aggressively cut the lending rates.
"The cost of funds has not come down during the current quarter as the deposit mobilisation is slack. This may affect our net interest margin (NIM)," Executive Director R K Bansal said here.
IDBI Bank was the first to cut base rate or the minimum rate of lending within hours of the Reserve Bank cutting the short-term lending rate and the cash reserve requirements by 0.25 percent cut in the third quarter monetary policy review on January 29. IDBI Bank lowered its base rate by 0.25 percent to 10.25 percent in what it called a "proactive step".
Bansal acknowledged the bank's aggressive stance but said one must not look at the margins in isolation. "The impact will not be much. It goes down one quarter and gains in the next quarter," he said.
The bank's net interest margin had moved up to 2.30 percent for the December quarter, up from 1.89 percent a year ago.
It can be noted that a majority of banks including State Bank of India (which cut its base rate by 0.05 percent in early February) took a cautious approach following the RBI move.
Bansal welcomed the RBI move to cut the repo rate at which it lends to the system by an additional 0.25 percent on March 19 and said the bank will decide next month whether to pass on the rate cut.