Bankers plan to cut lending rates following the Reserve Bank of India effecting cuts in the policy repo rate and the Cash Reserve Ratio. Deposits rates will happen with a lag.

Pratip Chaudhuri, Chairman, State Bank of India: SBI would do full monetary policy transmission by cutting lending rates. With the RBI move, SBI gets a relief of around Rs 300 crore from both CRR (Rs 240 crore) and repo rate cut (Rs 60 crore). Currently, SBI has surplus liquidity of Rs 40,000 crore.

Base rates across all banks are lower than the rates six months back. Benefit of the repo and CRR cuts will be passed on to the borrowers. Some banks might cut base rates while others may cut lending rates for select borrower categories.

Chanda Kochhar, Managing Director and CEO, ICICI Bank:

While the rate cut signals a monetary policy stance that is more supportive of growth, the CRR cut complements the same by seeking to address liquidity conditions and will facilitate transmission of the monetary policy stance into lending rates.

It’s not necessary to assume, if lending rates go down, deposits will automatically come down. Further, this is the best time for small depositors. On the lending side, there is definitely going to be a transmission, but on the deposits side, we will have to look at it. Clearly, in the long term banks cannot take a hit on NIMs.

Our deposit rate hike last week is just an alignment of our rates with the market. Deposits are growing at a rate lower than credit growth

Aditya Puri, Managing Director, HDFC Bank:

Given that there has been a cut in both the CRR and repo rate, there will definitely be monetary transmission. There will not really be any pressure on the margins.

Both the CRR and repo cut will definitely reduce our costs by approximately Rs 70 crore. So even if we reduce the rates, it will be on the incremental and not on existing portfolios in large cases.

K.R. Kamath, Chairman, India Banks' Association:

Apart from the rate cut, another welcome move is the outlook given by the RBI has put growth above inflation.

According to Kamath, who is also the Chairman and Managing Director, Punjab National Bank, banks which have surplus liquidity may have some leeway to reduce the deposits rates further.

“There may be pressure on the NIMs and banks may not be in the position to absorb the cuts immediately. There is increased need for banks for stepping up provisioning. A reduction in base rate will have an immediate effect, while deposit rate cut will take about a year; hence there is a lag effect. Hence, reduction with a lag effect, it may complicate situation for the banks.

M. Bhgavantha Rao, Managing Director, State Bank of Hyderabad:

The cut in key policy rates by the apex bank on Tuesday is a staring point for further easing of rates. Though repo rate reduction was on the expected lines, the CRR cut could be due to the tight liquidity scenario faced by the banks in the last two weeks, he said.

V.A. Joseph, Managing Director and CEO, South Indian Bank, said the credit policy is very much on expected lines since the inflation has started coming down. At least 25 basis point rate cut was expected. “We are expecting further more reductions in the rates if inflation comes down further,” he told Business Line .

This is a very balanced decision on the part of Reserve Bank of India. The rate cut will send a very positive signal to the market and more focus should be given to growth, he said.

Shyam Srinivasan, Managing Director and CEO, Federal Bank, said today’s rate cuts make India the first major Asian economy to ease borrowing costs in 2013. This, along with the Finance Ministry’s commitment to keep fiscal deficit at 4.8 per cent, will induce confidence in directing increased credit flows towards productive investments, he said.

“I would have preferred an even larger cut in CRR, as it could have delivered a significant multiplier effect on liquidity and could have made transmission of rates a lot easier,” he added.

M. Narendra, Chairman and Managing Director, Indian Overseas Bank:

Shifting its prolonged focus on addressing inflation risks to growth risks, the RBI has guardedly reduced the policy rate by 25 basis points. Growth-inflation dynamics in the current quarter will decide whether the regulator will follow this up with further cuts.RBI’s latest inflation expectations survey indicates that the perception of current inflation as well as expectations of future inflation among the common people has increased, though marginally, in the third quarter. Besides, widening current account deficit continues to pose a major challenge to inflation control.

S.L.Bansal, Chairman and Managing Director, OBC :

Oriental Bank of Commerce has welcomed the RBI’s move to cut repo rate and cash reserve ratio. “It's a good policy. Our asset liability committee (ALCO) will meet in next few days. Most likely the policy transmission will happen,” he said.

The CRR cut will release funds close to Rs 450 crore for the bank.

( With inputs from Hyderabad, Chennai, Kochi and New Delhi bureaus )

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