Deposit, lending rate cuts unlikely, say bankers-Business Line
MUMBAI/CHENNAI, JUNE 17:
There is little room for banks to cut either deposit or lending rates as the Reserve Bank of India left key policy rates unchanged in its mid-quarter review of monetary policy.
The repo rate and cash reserve ratio (CRR) continue at 7.25 per cent and 4 per cent, respectively.
Amid global uncertainty, high food and fuel inflation and widening current account deficit (CAD), banks are unlikely to reduce interest rates, say bankers. Here is what they said:
S. S. Mundra, CMD, Bank of Baroda: As expected, the RBI has kept the policy rates unchanged.
The guidance shows that there is little room for further cut in the interest rates going forward.
Clearly, things guiding the next policy will be the movement of food prices, measures taken by the Government on improving the CAD and global commodity and fuel prices.
Banks will have to now watch inflation, the rate of accretion in deposits and the ability to contain the cost of deposits.
This will help us assess if there is an enabling situation to cut interest rates on the deposit or lending side. As of now, the elbow room to cut rates is limited.
Vijayalakshmi R. Iyer, Chairperson and MD, Bank of India: The status quo maintained by the RBI was on expected lines. Currency depreciation and high currency account deficit are the main reasons for the rates being left unchanged.
Liquidity is under control, hence, the CRR has been left untouched.
The earlier rate cuts have also not seen much transmission by the banks on the deposit and lending rates. Also, the credit demand has not picked up as the economy still looks slow. So, the RBI will have to wait and watch for now as there is also a lot of volatility in the market.
M. Narendra, CMD, IOB: Banks may not be able to bring down their base rates till such time their cost of resources fall significantly. The deposit rates are still ruling high.
More clarity is expected to emerge on possible tapering off of the quantitative easing by the US Fed, which would give a clear direction and stability to the rupee.
The deposits and credit growth in banks will begin to improve at a speedier pace only in the second half of the year.
The onset of an early monsoon and its progress so far are likely to contribute to growth in the agricultural sector significantly, which may simultaneously ease pressure on food inflation.
The recent measures taken by the RBI and the Government to slow down gold imports and likely reforms in FDI in selective sectors will have a positive impact on the current account deficit.
Shailendra Bhandari, MD and CEO, ING Vysya Bank: The RBI, as expected, has kept the key rates on hold.
While the tone was cautious, and argued for evidence of sustained reduction in inflation before further easing, our sense is that with few signs of economic recovery, we could see a re-examination of this stance, perhaps as early as July.
Of course, any volatility in exchange rates may work against early easing.
Shyam Srinivasan, MD and CEO, Federal Bank: Progressive reduction in inflation and deposit rates continuing at elevated levels have been positives for depositors.
With the monsoon progressing well and with softening global commodity prices, we expect inflation to continue on its southward journey. This is likely to lead to a situation of ‘durable receding of inflation’ and should pave the way for monetary easing in the short to medium term.
As inflation trends down and increases possibility of rate cuts, both depositors and borrowers are likely to begin seeing positives.
Abheek Barua, Chief Economist, HDFC Bank: The absence of cuts in the repo rate and CRR hardly came as a surprise.
We still believe there is the possibility to cut rates by 50-75 bps over the remaining part of the year.
We also wouldn’t rule out the possibility of a couple of cuts in the CRR down the road as liquidity would tighten as we enter the second half of this fiscal.
I would like to ask CEOs of bank to suggest the ways to help cut in deposit interest rate and then cut in lending rate.Most of the senior officials of Banks are engaged in just flattery to ministers and RBI officials .They do not have their own ideas and views and if they have they do not have courage to put them before Ministers and RBI.
ReplyDeleteIt is also a fat that banks may not reduce interest rate only by reduction in Repo rate or Bank rate or CRR cut. They may not bear the consequences of cut in deposit rate permanently even when RBI starts paying interest on CRR fund. During last one year RBI has brought down Repo to a great extent, but bankers could not cut their interest rate. Banks are though free to cut in deposit rate or lending rate , but they cannot do it .
If bankers really want cut in deposit rates they will have to enhance their CASA volume and for this purpose they will have to improve customer service. It is only the share of CASA which enables the banks reduces lending rate under present scenario. If they reduce rate on savings deposits they will lose their depositors and hence face erosion in growth and hence the capacity to reduce lending rate. , Few private banks have already adversely affected the CASA of public sector banks because interest rate offered by private sector banks is higher than that by public sector banks. Banks will have to make effort to increase their base of CASA to reduce lending rate. Advantage of rise in CASA business and reduction is lending rate in gradual way is that there will be addition of more and more customers in their fold. IN brief, when lending rates are lowered by banks, they will get additional CASA by addition of more and more corporate business.
Secondly option is that RBI will have to take back freedom given to banks for deciding their own interest rate structure and RBI in turn will have to decide uniform national structure keeping in view the economic situation of the country, saving rate, external situation, foreign debts, current account deficit, asset liability mismatch, inflationary pressure etc. RBI will in this way get success in stopping interbank rate rivalry and stop transfer of lending accounts from one bank to other on the ground of lower lending rate. Banks will stop giving concession to borrowers sacrificing the profitability of banks.RBI thus will be able to force banks to focus on those sectors for which lending in more important in the interest of nation. They will be able to stop multiple financing and excess financing to ill-motivated borrowers and thus help in reduction of bad loans too.
As soon as the uniform rate mechanism put in place by RBI, bankers will stop interbank rivalry in interest rate competition and will focus in their standard of customer service to attract more and more saving depositors and more and more business men to improve their current deposit share. As CASA improves, profitability of banks will start improving.
Lastly banks will have to improve quality of lending so that ratio of nonperforming assets i.e. NPA comes down and the burden of provisioning is reduced. Banks will have to remove and punish bank officials who are sanctioning new loans after taking bribe and costly gifts. Further government will have to empower banks, make their legal system tight and effective, force the police and administrative machinery to help bank in recovery of loan from recalcitrant borrowers.and made e