In a cheer for borrowers, banks are likely to reduce their lending rates following a 25 basis point reduction in the repo rate by RBI. The rate cut is expected to have a positive impact, especially for consumers, as it will result in lower EMIs (equated monthly instalments) for the borrowers.
With the present and previous rate cuts by RBI, banks see an opportunity to revise the base rates. “Since there is a lag effect for the monetary transmission to take place, the effect of previous 25 basis point cut together with the present reduction would accentuate banks to review their base rates,” Indian Banks’ Association Chairman T M Bhasin said.
“Our bank will take an appropriate call of a cut in the Base Rate by looking at all evolving circumstances,” State Bank of India Chairman Arundhati Bhattacharya said.
“With the government embarking on a path of qualitative fiscal consolidation and the formal adoption of inflation targeting, inflation trajectory is expected to stay benign and will aid banks in their decision making,” she added.
“The repo rate cut is a welcome step that demonstrates RBI’s comfort with the inflation outlook and its responsiveness to emerging indicators,” ICICI Bank CEO and Managing Director Chanda Kochhar said.
“The rate action today should help move the economy forward on a positive growth path,” she added.
V.Vaidyanathan, Chairman & Managing Director of Capital First, hoped that the rate cut would soon be transmitted by the banking system this time, as credit growth was already muted, and NCD rates from Mutual Finds were lower than bank Base Rates by over 100 basis points.
Analysts point out that rate cut would complement the measures taken in the Union Budget to spur investments and boost infrastructure financing. “If the monsoon is normal and crude oil prices do not stage a sharp rebound, we expect further easing of 25-50 bps in 2015,” said Icra’s Group CEO Naresh Takkar.
Industry bodies welcome Today’s positive surprise move received thumbs up from India Inc and various industry associations such as CII, FICCI, Assocham and PHD Chamber. They hope that banks would lower lending rates for investment and consumer loans.