Banks expect further cut in rates by RBI to boost confidence in customers

After long wait inflation has come down to single digit level of 8.98%, therefore the banker are of view that RBI should cut down on repo rates to boost the confidence of India Inc and encourage growth. On Sunday the CII chief and ICICI bank chairman K V Kamath said that key policy rates could be lowered to boost confidence of India Inc and spur growth.

In his speech given at the India Economic Summit organized by the World Economic Forum and CII said, "Interest rates are still high. Inflation has fallen to single digit, I think that would give confidence (to RBI) to roll back or signal drop in interest rate."

The country's largest lender SBI also inclined for further reduction of key policy rates by RBI to get going the economy. "Interest rates should be lowered further otherwise the kick-start in economy won't take place," SBI Chairman O P Bhatt pointed informed the reporters that the bank has already taken decision to cut the deposit rates by 50 basis points from December 1.

He said when asked whether it was time for the RBI to cut policy rates "Since the commodities prices and inflation are going down and the efforts made by the regulatory authorities all over the world to lower the benchmark and repo rate, I expect interest rates will come down. But it would be difficult to say when it will go down,"

Bhatt further added that as the liquidity condition has improved a lot compared to the first week of October therefore SBI is planning to hire 25,000 staff this fiscal.
Other bankers are also foreseeing that RBI might reduce the short-term lending (repo) rate and amount of deposits banks need to keep with RBI (CRR), which will enable banks to lower their lending rates further.

"If the low inflation sustains for a period of two to three weeks, the Reserve Bank might reduce CRR and repo rate further...this may give room to banks to cut their interest rates again," public sector lender Bank of India chairman and MD T S Narayanasami said.

In order to deal with difficult liquidity situation, the RBI has already cut CRR three times to 5.5% from 9% and short-term repo rate twice to 7.5% from 9%.

By adopting the mix of monetary and fiscal steps, the RBI and the government have been able to infuse over Rs 2.5 lakh crore into the banking system to ease the liquidity shortage and to improve credit availability particularly to the needy sectors.

UCO Bank CMD S K Goel said RBI might be cutting down the CRR and repo rate further by 100 basis points in the near future. "This may help banks to cut their BPLRs by 0.5% in the near term," Goel said. In the last two weeks majority of public sector banks, including SBI responding to the recent RBI policy measures, have affected a cut in their prime lending rates by 0.75 percentage points in the last two weeks.

Union Bank of India CMD M V Nair informed banks will probably review their rates if the cost of funds further move downward. "If RBI again takes further action that may have an impact on interest rates. If the cost of funds is coming down further, this may help banks to lower their rates again," Nair said.

Banks started cutting BPLR rates, retail borrowers to get benefit

Last Saturday the Reserve Bank of India (RBI) took measures to ease liquidity. RBI had reduced Cash Reserve Ratio (CRR) following this public sector banks (PSBs) have started cutting their benchmark prime lending rates (BPLR). The cut in BPLR is definitely going to benefit retail borrowers and India Inc. For instance Union Bank of India has announced a 50 basis points cut in its BPLR to 13.5 per cent.

“We have reduced our BPLR by 50 basis points on account of the 350 basis points reduction in the Cash Reserve Ratio (CRR) affected by RBI. The bank does not earn anything on the funds impounded under CRR. Thanks to the CRR cut, we can now deploy the funds released at an average yield of 10.50 per cent,” said Mr M.V. Nair, Chairman and Managing Director, Union Bank of India.

Previously, the bank had reduced interest rates on home loans by 50 basis points with effect from October 21. Mr Nair informed the bank is also deciding to withdraw its 900-days fixed deposit scheme, under which it is offering a high interest rate of 10.5 per cent.

As per press release issued by the United Bank of India, it has cut its prime-lending rate by 25 basis points (0.25 percentage points) which have come into effect from Monday.

The release stated that the rate cut will be applicable to educational loan, housing loan, SMEs and other loans. The reduced lending rate would also be applicable for existing loan accounts.

“Further cut in the rate of interest on advances will be considered by the bank, commensurate with the decrease in the rate of deposits in the next week,” the release added.

Earlier in the last week, Punjab National Bank had cut its prime lending rate by 50 basis points to 13.5 per cent. Likewise, IDBI Bank had also announced a 50 basis points reduction in the interest rates on home loans to 11 per cent although it has raised the margin on home loans from 15 per cent to 20 per cent for loans up to Rs 30 lakh and to 25 per cent for loans over Rs 30 lakh. The bank has also implemented a 50 basis points reduction in education loans.

RBI orders cancellation of license of Shri S K Patil Co-operative Bank

On Monday the Reserve Bank released orders of the canceling of the license of the Shri S K Patil Co-operative Bank, Kurundwad, Kolhapur district of Maharashtra. According to RBI press release the bank has got bankrupt and all efforts of its revival in close consultation with the Maharashtra Government have proved to be fatal moreover the depositors of the bank are also inconvenienced by continued uncertainty.

RBI has asked the registrar of Co-operative Societies, Maharashtra, to issue an order for winding up the bank and appoint a liquidator for the bank.

The press release also stated that as a resultant to the cancellation of its license, the bank is forbidden from carrying on with the `banking business' as defined in Section 5 (b) of the Banking Regulation Act, 1949 (AACS) including acceptance and repayment of deposits.

Release further stated in liquidation conditions every depositor is permitted for repayment of his/her deposits up to a monetary ceiling of Rs 1-lakh from the Deposit Insurance and Credit Guarantee Corporation, under usual terms and conditions.