Banks see 50-bp PLR cut soon
The Financial Express, April 9, 2009, Page 1
Banking Bureau, Mumbai
RBI governor D Subbarao appears to have finally prevailed upon bankers to pare lending rates. Subbarao, who met bankers on Wednesday in the run-up to the central bank’s annual credit and monetary policy announcement, was assured by the banking fraternity that lending rates would soon be reduced by another 50 basis points. Earlier this week, the RBI governor had lamented the fact that lending rates had not fallen in line with recent reductions in policy rates.
Bank of India CMD TS Narayanasami, who is also Indian Banks’ Association chairman, said, “There is scope for a cut in deposit rates by 50-75 basis points over a period of one month, which could lead to a cut in lending rates by 50 basis points thereafter. We are also endeavouring to bring down our cost of funds so that we can pass it on in the form of lending rate cuts. As a banker, I would expect interest rates to come down in an economy poised for a sharper downturn.”
Narayanasami said bankers discussed the liquidity position and factors limiting a reduction in interest rates. They impressed upon RBI the likelihood of non-performing assets going up this year and said that with the economic slowdown, credit growth would be moderated. Yields, which remained high, also hindered any reduction in rates, bankers felt.
“It is likely to remain slightly high for some time, and the cost of funds is likely to be up. The BPLR will probably remain sticky for the next few months. Only then it may move southwards,’’ said Union Bank of India CMD MV Nair, who was also present at the meeting.
“If yields aren’t coming down, it is due to a variety of reasons. Though RBI is managing government borrowings efficiently, the market has not taken that into account. Market stabilisation scheme redemption will also take place. Still, there is no cause for the debt market to firm up at this level,” said Narayanasami. He said it is in the banks’ interests to bring down lending rates so that asset portfolios aren’t impaired.
“Deposit rates have started coming down. You will see more banks dropping their deposit rates over the next fortnight. Though there is little scope in today’s context to cut interest rates, it will happen over a period of few weeks,’’ he said. Banks with sufficient liquidity can afford to bring down their deposit rates.
“We have already reduced our rates by 200 basis points in the past few months. Hence, now it is the turn of the private peers to do the same,” said Nair.
“Though RBI didn’t ask us to cut deposit or lending rates, it has given enough signals through successive repo rate cuts for rates to come down. Only, if there is a sharper downturn, it will impair our asset quality further,” Narayanasami added.
Among the other bankers who attended the meeting were Punjab National Bank CMD KC Chakrabarty, Canara Bank CMD AC Mahajan, Standard Chartered India chief Neeraj Swaroop and IDBI Bank CMD Yogesh Aggarwal.
RBI governor Subbarao will also be meeting with top industrialists, credit rating agencies and apex bodies to get their views on the current slowdown and on interest rates ahead of the credit policy announcement scheduled for April 29.
The Financial Express, April 9, 2009, Page 1
Banking Bureau, Mumbai
RBI governor D Subbarao appears to have finally prevailed upon bankers to pare lending rates. Subbarao, who met bankers on Wednesday in the run-up to the central bank’s annual credit and monetary policy announcement, was assured by the banking fraternity that lending rates would soon be reduced by another 50 basis points. Earlier this week, the RBI governor had lamented the fact that lending rates had not fallen in line with recent reductions in policy rates.
Bank of India CMD TS Narayanasami, who is also Indian Banks’ Association chairman, said, “There is scope for a cut in deposit rates by 50-75 basis points over a period of one month, which could lead to a cut in lending rates by 50 basis points thereafter. We are also endeavouring to bring down our cost of funds so that we can pass it on in the form of lending rate cuts. As a banker, I would expect interest rates to come down in an economy poised for a sharper downturn.”
Narayanasami said bankers discussed the liquidity position and factors limiting a reduction in interest rates. They impressed upon RBI the likelihood of non-performing assets going up this year and said that with the economic slowdown, credit growth would be moderated. Yields, which remained high, also hindered any reduction in rates, bankers felt.
“It is likely to remain slightly high for some time, and the cost of funds is likely to be up. The BPLR will probably remain sticky for the next few months. Only then it may move southwards,’’ said Union Bank of India CMD MV Nair, who was also present at the meeting.
“If yields aren’t coming down, it is due to a variety of reasons. Though RBI is managing government borrowings efficiently, the market has not taken that into account. Market stabilisation scheme redemption will also take place. Still, there is no cause for the debt market to firm up at this level,” said Narayanasami. He said it is in the banks’ interests to bring down lending rates so that asset portfolios aren’t impaired.
“Deposit rates have started coming down. You will see more banks dropping their deposit rates over the next fortnight. Though there is little scope in today’s context to cut interest rates, it will happen over a period of few weeks,’’ he said. Banks with sufficient liquidity can afford to bring down their deposit rates.
“We have already reduced our rates by 200 basis points in the past few months. Hence, now it is the turn of the private peers to do the same,” said Nair.
“Though RBI didn’t ask us to cut deposit or lending rates, it has given enough signals through successive repo rate cuts for rates to come down. Only, if there is a sharper downturn, it will impair our asset quality further,” Narayanasami added.
Among the other bankers who attended the meeting were Punjab National Bank CMD KC Chakrabarty, Canara Bank CMD AC Mahajan, Standard Chartered India chief Neeraj Swaroop and IDBI Bank CMD Yogesh Aggarwal.
RBI governor Subbarao will also be meeting with top industrialists, credit rating agencies and apex bodies to get their views on the current slowdown and on interest rates ahead of the credit policy announcement scheduled for April 29.
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