Mumbai: Borrowers can now look forward to their Equated monthly Instalment (EMIs) coming down soon as leading bankers on Tuesday said they will pass on the benefit of the Reserve Bank of India reducing its short-term lending rate and cash reserve ratio to customers. Bankers, however, did not say by how much or how soon they will reduce their lending rates.
Stating there is room for monetary transmission, State Bank of India Chairman Pratip Chaudhuri 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 to finalise the details," Chaudhuri told reporters.
Indicating a cut in base rate, Chanda Kochhar of ICICI Bank said there is going to be a transmission on the lending side, while on the deposits front, it will wait and watch. "There is going to be a lag but we will not take a hit on NIM. The cuts are positive for EMIs."
Hinting that her bank has no immediate plan to lower deposit rates, she said, "It is not necessary to assume that deposit rates will come down with reduction in the lending rates." HDFC Bank Managing Director and Chief Executive Aditya Puri said, "The 25 bps reduction in the CRR will benefit us to the tune of Rs 70 crore and there will be a rate cut. A case for transmission is there."
Punjab National Bank's KR Kamath, while welcoming the rate cuts, said there was a case for transmission but that hinged upon better numbers by the bank. RBI earlier in the day cut cash reserve ratio (CRR), the part of deposits banks have to keep with the central bank, by 0.25 per cent, releasing Rs 18,000 crore into the system.
Indian Overseas Bank CMD M Narendra, however, said it is a challenge for banks to pass on the benefits. Narendra said that growth-inflation dynamics in the current quarter will decide whether the regulator will follow this up with further cuts.
"Against this, recovery in growth is expected to be gradual through 2013-14, which again depends on global commodity price trends. It will be, therefore, a challenge for banks to pass on the benefit of the rate cut to push growth and consumption demand without impacting the already slowing deposit growth," he said.
Bank of Baroda Chairman and Managing Director SS Mundra, however, said there will be an impact on his NIMs as lending rates come down without repricing of the deposit rates. He did not say whether there will be a cut in the lending rates.
SBI Managing Director A Krishna Kumar said, "a rate cut is likely. Rates on both advances and deposits may come down." According to Canara Bank Executive Director AK Gupta, the bank would consider interest rate cut in the light of RBI policy action.
Echoing the views, Bank of India Executive Director N Seshadari said most banks are likely to transfer the rate cut. "Full transmission will happen on both lending and deposit rates. A 25 bps cut is most likely," he said.
On poor deposit growth, about which Governor D Subbarao expressed concerns while unveiling the third quarter monetary policy review in which he cut the repo and CRR rates by 25 bps, Chaudhuri blamed this partly on the flight of deposits to mutual funds. "We have seen a flight of deposits as mutual funds are better on taxation and liquidity management," he said.
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