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.