Bankers, on Tuesday, promised to reduce their lending rates soon after the Reserve Bank of India (RBI) cut repo rate and Cash Reserve Ratio (CRR).
IDBI Bank was the first to take the cue and slash the rate. IDBI Bank’s loans, linked to Base Rate / Prime Lending Rate, will become cheaper following a 25 basis point reduction in its Base Rate to 10.25 per cent with effect from February 1, 2013. “IDBI Bank has taken this pro-active step, keeping in view the policy measures announced by the RBI in its third quarter review of Monetary Policy on Tuesday,” said IDBI Bank in a release.
Foreign lender Royal Bank of Scotland (RBS), too, reduced its base rate by 0.75 percentage points to 9 per cent. “Today’s move by the RBI to cut repo and CRR by 25 basis points is in sync with our expectations,” it said.
“The rate cut would be helpful in improving investment climate and start the capex cycle. SBI would do full monetary policy transmission and reduce cost of capital,” said Pratip Chaudhuri, Chairman, State Bank of India. Stating that there was room for monetary transmission, he said, “The overall cost of funds gets lowered by Rs.300 crore following the CRR cut which we will pass on to our borrowers without compromising on the net interest margin (NIM).
“But how and in which pocket will it be, would be decided soon. Our ALCO (risk management committee in banks) will be meeting tomorrow [Wednesday] to finalise the details,” Mr. Chaudhuri told reporters. “Given that there has been a cut in both the CRR and repo rates, there will definitely be monetary transmission. There will not really be any pressure on the margins and will remain within the range,” said Aditya Puri, Managing Director, HDFC Bank.
“Both the CRR and repo cut will definitely reduce our costs by about Rs.70 crore. So even if we reduce the rates, it will be on the incremental and not on existing portfolios in large cases,” Mr. Puri added.
“There is a case for transmission this time, though policy rate in itself does not directly benefit the banks but the repo rate cut coupled with a CRR cut will help banks improve the earnings and banks might attempt at transmitting this benefit to the customers,” said K. R. Kamath, Chairman of India Banks’ Association.