Your home, car loan rates won’t rise till Mar
Economic Times, January 30, 2010, Page 14
But Corporates Who Borrow Short-Term Money At Sub-PLR Rates May Have To Cough Up More, Feel Top Bankers
Our Bureau MUMBAI
COMMERCIAL banks are unlikely to raise their prime lending rates — offered to the best customers — or deposits rates at least till the end of March. However, large corporates borrowing short-term money at sub-PLR rates may have to cough up more. This was indicated by CEOs of several commercial banks soon after RBI announced a 75-basis point (bp) hike in the cash reserve ratio, the proportion of deposits that banks have to park with RBI. However, car loan rates are unlikely to rise due to increased competition among banks in this segment.
The hike in CRR to 5.75% from 5% in two stages will suck out Rs 36,000 crore from the banking system.
“Despite the CRR hike, there is ample liquidity and thus in the near term rates will not rise,” said AC Mahajan, CMD of Canara Bank. “However,” said DL Rawal, CMD of Dena Bank, “rates will firm up only after March if credit shows signs of revival.” Banks have been parking Rs 75,000-85,000 crore with RBI at 3.5% under the reverse-repo window.
In the light of the CRR hike, CEOs feel that their net interest margins — the spreads between cost of liabilities and yield on advances — could shrink between 7 and 10 bps (a bp is .01%). That is because the cash parked by banks with RBI will not earn any interest, which, in turn, impacts NIMs. A senior SBI official told ET that a CRR hike will translate into an additional outgo of Rs 6,000 crore for the bank, but will have a marginal impact on its NIM. In the December quarter, SBI had surplus liquidity of Rs 75,000 crore.
For Punjab National Bank, the CRR hike will absorb around Rs 1,800 crore and shrink its NIM by 10 bps while for HDFC Bank Rs 1,500 crore will be impounded and NIM will narrow by 7-8 bps. Similarly, the respective figures for Union Bank of India are Rs 1,200 crore and 7-8 bps and for Canara Bank, Rs 1,600 crore and 7-8 bps.
Meanwhile, car loan customers are unlikely to be impacted by the CRR hike due to increased competition in the market. ICICI Bank had brought down its interest rates on car loans early this month. Responding to this, larger players in the car loan market such as HDFC Bank, Axis Bank and Kotak Mahindra also bought down car loan rates.
“The hike in CRR has to be adjusted and the impact will have to be passed on to customers. Hence, the sub-PLR advances would be impacted and reduce over a period of time,” said MV Nair, CMD of Union Bank of India and chairman of Indian Banks Association.
According to TY Prabhu, CMD of Oriental Bank of Commerce, short-term rates for corporates may go up but again this will depend on the surplus liquidity that each bank has with them. Large banks have surplus liquidity in the region of Rs 8,000 crore to Rs 10,000 crore.
“With the hike in CRR, banks will lend more to corporates instead of parking funds with mutual funds. The CRR hike will have little impact on margins but then loan growth will make up for it,” said Romesh Sobti, MD & CEO of IndusInd Bank. Meanwhile, Dhanlaxmi Bank MD & CEO Amitabh Chaturvedi said: “There is unlikely to be any immediate impact. There may not be an increase in both loans and deposit rates. Margins are unlikely to be impacted as there is enough money in the system.”
Economic Times, January 30, 2010, Page 14
But Corporates Who Borrow Short-Term Money At Sub-PLR Rates May Have To Cough Up More, Feel Top Bankers
Our Bureau MUMBAI
COMMERCIAL banks are unlikely to raise their prime lending rates — offered to the best customers — or deposits rates at least till the end of March. However, large corporates borrowing short-term money at sub-PLR rates may have to cough up more. This was indicated by CEOs of several commercial banks soon after RBI announced a 75-basis point (bp) hike in the cash reserve ratio, the proportion of deposits that banks have to park with RBI. However, car loan rates are unlikely to rise due to increased competition among banks in this segment.
The hike in CRR to 5.75% from 5% in two stages will suck out Rs 36,000 crore from the banking system.
“Despite the CRR hike, there is ample liquidity and thus in the near term rates will not rise,” said AC Mahajan, CMD of Canara Bank. “However,” said DL Rawal, CMD of Dena Bank, “rates will firm up only after March if credit shows signs of revival.” Banks have been parking Rs 75,000-85,000 crore with RBI at 3.5% under the reverse-repo window.
In the light of the CRR hike, CEOs feel that their net interest margins — the spreads between cost of liabilities and yield on advances — could shrink between 7 and 10 bps (a bp is .01%). That is because the cash parked by banks with RBI will not earn any interest, which, in turn, impacts NIMs. A senior SBI official told ET that a CRR hike will translate into an additional outgo of Rs 6,000 crore for the bank, but will have a marginal impact on its NIM. In the December quarter, SBI had surplus liquidity of Rs 75,000 crore.
For Punjab National Bank, the CRR hike will absorb around Rs 1,800 crore and shrink its NIM by 10 bps while for HDFC Bank Rs 1,500 crore will be impounded and NIM will narrow by 7-8 bps. Similarly, the respective figures for Union Bank of India are Rs 1,200 crore and 7-8 bps and for Canara Bank, Rs 1,600 crore and 7-8 bps.
Meanwhile, car loan customers are unlikely to be impacted by the CRR hike due to increased competition in the market. ICICI Bank had brought down its interest rates on car loans early this month. Responding to this, larger players in the car loan market such as HDFC Bank, Axis Bank and Kotak Mahindra also bought down car loan rates.
“The hike in CRR has to be adjusted and the impact will have to be passed on to customers. Hence, the sub-PLR advances would be impacted and reduce over a period of time,” said MV Nair, CMD of Union Bank of India and chairman of Indian Banks Association.
According to TY Prabhu, CMD of Oriental Bank of Commerce, short-term rates for corporates may go up but again this will depend on the surplus liquidity that each bank has with them. Large banks have surplus liquidity in the region of Rs 8,000 crore to Rs 10,000 crore.
“With the hike in CRR, banks will lend more to corporates instead of parking funds with mutual funds. The CRR hike will have little impact on margins but then loan growth will make up for it,” said Romesh Sobti, MD & CEO of IndusInd Bank. Meanwhile, Dhanlaxmi Bank MD & CEO Amitabh Chaturvedi said: “There is unlikely to be any immediate impact. There may not be an increase in both loans and deposit rates. Margins are unlikely to be impacted as there is enough money in the system.”
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