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Banks may cut lending rates by 0.5% soon

Banks may cut lending rates by 0.5% soon
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First Published: Sun, Apr 05 2009. 10 45 AM IST
Updated: Sun, Apr 05 2009. 10 45 AM IST
PTI
Mumbai: With inflation nearing zero and signs of economic revival, bankers today hinted at cuts of 0.5% in lending rates and 0.5-0.75% in deposit rates in two-three weeks.
“Given that the inflation is low, lending rates may go down further by 0.5% in the next two to three weeks and deposit rates by 0.5-75%. Banks will bring down their interest rates in line with a reduction in cost of funds,” Bank of India’s Chairman and Managing Director, T S Narayanasami told PTI here.
Responding to the monetary policy signals and prevailing market trends, state-owned banks have already brought down their Benchmark Prime Lending Rates (BPLR) by 0.5% in the recent past, Narayanasami, who also head’s Indian Banks’ Association (IBA) said.
Bank of Baroda’s CMD, M D Mallya agreed that the current macro-economic conditions favoured further reduction in lending rates.
BOB may look at a possible reduction in its rates after watching the market movements, Mallya said.
“There surely exists a scope to bring down the rates further. Given the current macro-economic signals, such as the low inflation, deposit and lending rates are tend to drop further in the period ahead,” Mallya said.
The WPI-based inflation fell to historic low after RBI aggressively cut its key-rates since October last year. Inflation currently stands at 0.31%.
State-owned, Central Bank of India’s Executive Director, Ramnath Pradeep echoed this view saying that the bank will examine the possibility of reducing its lending rates as and when the cost of funds come down.
“There is certainly a scope to cut rates further by another 0.5%,” Pradeep said.
Kotak Mahindra Bank’s Head of retail liabilities, K V S Manian said the interest rates will come down by another 0.25-0.5% if larger banks take the lead.
“Cost of funds of banks are still high and banks need to bring down their deposit rates first. This will be followed by a similar reduction in the lending rates. Larger banks will have to drop their rates first,” Manian said.
Axis Bank’s Head of Credit, Partha Mukherjee said banks have responded to the market signals and have reduced their interest rates in the recent past.
“Banks have already lowered their lending rates. This trend is likely to continue in the period ahead if the cost of funds are decreasing in the system,” Mukherjee said.
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First Published: Sun, Apr 05 2009. 10 45 AM IST