Aftab Ahmed : Mumbai, Sat May 04 2013, 09:01 hrs| Indian Express
Bankers do not see any scope for cutting either lending or deposit rates even after Reserve Bank of India’s 25-basis points repo rate cut on Friday as tight liquidity condition in the market has kept cost of funds elevated.
Repo rate, the rate at which RBI lends to banks, cut does not automatically provide banks with the opportunity to cut lending rates as it does not immediately translate benefits on their profit and loss accounts, bankers said.
“One basis point cut is much too high. There is no scope for cutting lending rates,” said State bank of India chairman Pratip Chaudhuri, adding, “Our total borrowing under the repo window is R20,000 crore, from that if I get a redemption of 25 bps, it adds to about R500 crore. And the total advances which are linked to the base rate are R50,000 lakh crore.”
Chanda Kochhar, CEO and MD of ICICI bank, said, “The scope for cutting lending rates comes from cost of funds only. If the cost of funds goes down then every bank can either cut the base rate or more aggressively cut rates for specific sectors.”
The scope for cutting lending rates is curtailed further as deposit growth in the banking system has been slow not letting banks cut deposit rates to bring down their cost of funds. “If the government spends money and liquidity comes, and if the total liquidity in the system is not tight then you will see the market mechanism evolve. Then you will see the deposit rates coming down,” said Aditya Puri, MD of HDFC Bank.
Kochhar said deposit growth has not improved significantly, which is an added pressure to tweak the rates on either sides.
Non-food credit rose 14.4% year-on-year (y-o-y) to R51,93,676 crore for the fortnight ended April 19. Deposit growth for the same period continued to be modest at 13.2% y-o-y, RBI data show. RBI has targeted a 15% credit growth and 14% deposit growth in the banking system for FY14.
Source : http://goo.gl/aGA5c