Friday, July 31, 2009

Most banks unlikely to reduce lending rates

Few bankers might take a call of RBI and will marginally reduce their lending rates but most of the banks are unwilling to do it. As per general accord the rates are likely to increase from the next calendar year.

On the other hand RBI governor D Subbarao is definite about the cut in lending rates even though the policy rates are not revised. He pointed out, “There is scope for reduction of lending rates within the policy rate adjustment already done by RBI... The lending rate should have come down to 9.5% but they are now at around 10.5% and above so there is scope for banks to reduce lending rates. We have also said that as deposits contracted at higher rates mature and get repriced, the cost of funds will go down for banks and they can reduce lending rates further”.

But a host of bankers on Tuesday communicated to the governor that it is not possible for them to bring down lending rates from their current levels. At the time of interaction with the RBI governor, CEOs of some of the bigger banks informed that net interest margins are under pressure. They also said that although banks have reduced the interest rates for borrowers, corporates have abstained from reducing the cost of their products.

Bankers informed RBI it is clear from the first quarter results that companies expenses on account of ‘interest paid to lenders’ have declined over the preceding and year-earlier quarters, which indicates that the cost of funds for corporates has come down.

MV Nair, CMD of Union Bank of India told ET, “Banks have passed on the benefit of easing interest rates to borrowers”. “Going forward, interest rates are not likely to fall from their current levels.”

Chanda Kochhar, MD & CEO, ICICI Bank, said, “We have cut our prime lending rate by 1.5%, the maximum by any private sector bank. Going forward, the rates would be dependent on credit growth. The rates currently are likely to be stable with a very minimal downward bias.”

Neeraj Swaroop, regional CEO (India & South Asia), Standard Chartered Bank added, “Over 90% of our lending is not linked to BPLR and judging our interest rates by BPLR doesn’t reflect the actual situation. Our rates have come down as much as the market rates have come down. We keep reviewing our BPLR from time to time.”

However, some anonymous bankers, informed reduction in lending rates is likely to happen but marginal at 25 bps. M Narandran, ED, Bank of India pointed out, “We do not expect any changes in interest rates immediately. Historically, there is a time lag in terms of repricing of deposits. Therefore, a reduction in lending rates can happen only at a later date. Meanwhile, we feel that rates have almost bottomed out, given that inflation is expected to rise in the second half coupled with high chances of pick-up in credit”.

Majority of the bank CEOs told the governor that credit has risen. According to private and foreign bankers BPLR has lost its relevance. An official from Axis Bank said, “The borrower owes us no loyalty. If our rates are not competitive, they will go to some other bank. There are very few loans which are linked to the BPLR”.

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