Wednesday, July 29, 2009

Banks may not take RBI’s call

Banks may not take RBI’s call
The Economic Times, July 29, 2009, Page 13

While A Few May Cut Lending Rates Marginally, Most Banks Likely To Hold Rates At Current Levels

Our Bureau MUMBAI

AFEW lenders may fall in for RBI’s moral suasion and cut their lending rates marginally, but most banks are likely to maintain status quo. The general consensus seems to be that rates are likely to go up from the next calendar year.

RBI governor D Subbarao has been categorical that lending rates have to come down even without a revision in policy rates. “There is scope for reduction of lending rates within the policy rate adjustment already done by RBI... The lending rate should have come down to 9.5% but they are now at around 10.5% and above so there is scope for banks to reduce lending rates. We have also said that as deposits contracted at higher rates mature and get repriced, the cost of funds will go down for banks and they can reduce lending rates further,” he said.

Incidentally, a host of bankers made it clear to the governor on Tuesday that there was no scope for bringing down lending rates from their current levels. During an interaction with the RBI governor, CEOs of some of the bigger banks said that net interest margins were under pressure. They also told him that while banks had lowered the interest rates for borrowers, corporates have refrained from lowering the cost of their products. In fact, bankers pointed out to RBI that the first quarter results declared by companies clearly indicate that their expenses on account of ‘interest paid to lenders’ have come down over the preceding and year-earlier quarters. This indicates that the cost of funds for corporates has come down.

“Banks have passed on the benefit of easing interest rates to borrowers,” MV Nair, CMD of Union Bank of India, told ET. “Going forward, interest rates are not likely to fall from their current levels.”

Chanda Kochhar, MD & CEO, ICICI Bank, said, “We have cut our prime lending rate by 1.5%, the maximum by any private sector bank. Going forward, the rates would be dependent on credit growth. The rates currently are likely to be stable with a very minimal downward bias.”

Adds Neeraj Swaroop, regional CEO (India & South Asia), Standard Chartered Bank, “Over 90% of our lending is not linked to BPLR and judging our interest rates by BPLR doesn’t reflect the actual situation. Our rates have come down as much as the market rates have come down. We keep reviewing our BPLR from time to time.”

However, some bankers, on condition of anonymity, said they expected any reduction in lending rates to be marginal, at 25 bps. “We do not expect any changes in interest rates immediately. Historically, there is a time lag in terms of repricing of deposits. Therefore, a reduction in lending rates can happen only at a later date. Meanwhile, we feel that rates have almost bottomed out, given that inflation is expected to rise in the second half coupled with high chances of pick-up in credit,” said M Narandran, ED, Bank of India.

Most bank CEOs told the governor that there has been a pick-up in credit. Private and foreign bankers point out that BPLR has lost its relevance. “The borrower owes us no loyalty. If our rates are not competitive, they will go to some other bank. There are very few loans which are linked to the BPLR,” said an official from Axis Bank.

No comments: