Banks likely to cut lending rates

With the Reserve Bank of India cutting the repo rate twice in the space of two months, banks are likely to warm up to cutting lending rates. Top bankers indicated as much in their reaction to the latest round of repo rate cut by the RBI. The central bank on Wednesday cut the repo rate (the interest rate at which it provides short-term liquidity to banks) from 7.75 per cent to 7.50 per cent.

Arundhati Bhattacharya, Chairman and Managing Director (CMD), State Bank of India, said: “We welcome the repo rate cut by RBI. With the Government embarking on a path of qualitative fiscal consolidation and the formal adoption of inflation targeting, inflation trajectory is expected to stay benign and will aid banks in their decision making. Our bank will take an appropriate call of a cut in base rate by looking at all evolving circumstances.”

TM Bhasin, Chairman of Indian Banks’ Association (IBA) CMD, Indian Bank, said the second 25 bps Repo rate cut in this Quarter outside the policy cycle, Signals the resolve of RBI to pro-actively play its role in propelling the growth. With monetary and fiscal policy deciding to work in tandem for the cause of inflation control, this is the right time to cut the policy rates.

Since there is a lag effect for the monetary transmission to take place, effect of previous 25 bps cut together with the present rate cut would accentuate banks to review their base rates.

Chanda Kochhar, MD and CEO, ICICI Bank, pointed out that the repo rate cut is a welcome step that demonstrates RBI's comfort with the inflation outlook and its responsiveness to emerging indicators. It also reflects the number of institutional reforms and policy measures outlined in the Union Budget, which lay the foundation for sustainable growth. The rate action today should help move the economy forward on a positive growth path.

Arun Tiwari, CMD, Union Bank of India, said: “The repo rate cut has not come as a surprise as the RBI Governor had indicated earlier that continuous easing of inflation coupled with sustained high quality fiscal consolidation will lead to more accommodative monetary policy.

“Our bank is unlikely to cut the base rate as we had responded to the RBI’s mid-January repo rate cut. Then we cut the base rate from 10.25 per cent to 10 per cent. However, other banks may cut their base rate in response to the latest round of repo rate cut.”

Rana Kapoor, MD and CEO, YES Bank, said: “I am not surprised at this strategic move by the RBI as it comes on the heels of the remarkable budgetary framework outlined by the FM. It is reassuring and points towards increasing synergy between the fiscal and monetary policymakers. I expect that there will be room for incremental monetary easing to the extent of 150 bps by the end of FY16, which will boost sentiment and reignite on-the-ground investment activity.”