Banks are unlikely to immediately cut their deposit and lending rates in response to the Reserve Bank of India cutting the repo rate (the interest rate it which banks borrow short-term funds from RBI) by 25 basis points. The cuts are likely to happen over the next three to six months.

Pratip Chaudhuri, Chairman, State Bank of India, said there is no scope to cut rates. There is nothing to transmit. There isn’t much effective demand from the corporate side. Home and car loans continue to be strong and till such time that we have enough deployment there, we do not think there is any compulsion to cut rates.

We don’t see too many new projects but we are seeing disbursal happening in the case of projects where financial closure has happened, but the pace of origination of projects has significantly dropped.

K.R. Kamath, CMD, Punjab National Bank, said while there have been clear signs of inflation coming down, it is too early to say that the problems (in the economy) are totally behind us. The inflation of about 6 per cent in March is still 1 per cent above the comfort level of the RBI and high CAD are areas of concern. In this background, the RBI has given clear message to the market that it will support growth. All banks’ respective Asset Liability Committees (ALCO) will meet at the earliest to take a call on the interest rates. But it will take time to reduce lending and deposit rates.

Chanda Kochhar, MD and CEO, ICICI Bank, said a rate reduction is not the only reason for credit pick-up. Final decision on cutting lending rates comes from cost of funds…which would depend on the mix of deposits and reduction in rates. Cost of funds is high at present and just one announcement will not lead to a reduction in cost of funds. Some interest rate reduction has already happened and if the positive lag of the earlier cuts continues, we will have to see.

S.S. Mundra, Chairman and Managing Director of Bank of Baroda, said there is no investment activity. Hence, despite a reduction in rate (lending) there won’t be any credit demand. Secondly, I think where there is credit demand, the current lending rate is comfortable and borrowers are not unduly perturbed about it. I expected the RBI to front load on repo rate cut because going forward it would be difficult for them to justify a rate cut. So if there was a 50 bps cut, there could have been a transmission.

V.R. Iyer, CMD, Bank of India, said overall, today’s policy statement has recognised the pressures on growth. It has provided a clear guidance that the recent assessment of growth-inflation dynamics provides little scope to the RBI for further monetary expansion. We are not ruling out transmission but it will take a while. This unexpected cut in repo will be a sentiment-booster and would address the concerns of different segments of the economy. However, it has also warned about policy reversals in case of worsening Current Account Deficit (CAD) scenario.

Shikha Sharma, Managing Director and CEO, Axis Bank, said the Governor has been saying that RBI will manage liquidity. However, the liquidity borrowing through Liquidity Adjustment Facility (LAF) is high. So, liquidity is tight. So unless cost of borrowing comes down, transmission is difficult. The current deposit rates are fundamentally to attract retail money. So, it remains to be seen if our retail customers will put in money in deposits on a term basis if rates come down.

Aditya Puri, Managing Director, HDFC Bank, said we can have OMOs (open market operations), but you need liquidity in the market, the repo borrowings (under Liquidity Adjustment Facility) is around Rs 99,000 crore or more…. And the Government has not spent so liquidity has not come in…which also creates a strain on the corporates.

If we get the (daily) borrowing (by banks) down to about Rs 60,000 crore over a period of time…then you will see a possibility of deposit rates coming down.

> beena.parmar@thehindu.co.in

> deepa.nair@thehindu.co.in

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