The Hindu Business Line : Lending rates to come down, says IBA chief

Chennai, Nov. 2 The “conducive factors”obtaining today in the banking industry are likely to cause an immediate fall in lending rates by 50 basis points (half per cent), says Mr T.S. Narayanasami, Chairman, Indian Banks Association.

Speaking to Business Line on Sunday, Mr Narayanasami stressed that the 50 basis points cut is imminent. However, further slashing of lending rates will happen in due course, after deposit rates come down.

He said the IBA has been talking to many banks requesting them to be “considerate” in charging interest rates and not use the liquidity released by reduction in cash reserve ratio as an opportunity to make fat margins, especially while lending to mutual funds, which are facing redemption pressure.

Mr Narayanasami, who is also the Chairman and Managing Director of Bank of India, said the banking system has credit proposals for about Rs 50,000 crore on hand. The RBI’s measures of Saturday would inject about Rs 1,40,000 crore into the system, arming banks with funds to lend.

The flood of liquidity will help banks meet the demand for credit from proposals on hand and also make them less dependent on costly bulk deposits. As such, deposit rates will come down. Once that happens, lending rates will further drop, he said.

IBA has undertaken to help any mutual fund that might need funds, to find a lender. “In the unlikely event that any mutual fund is not clear about which bank to approach for funds, IBA will help,” he said.

Observing that the cut in ‘repo rate’ is the “beginning of goods things to happen”, Mr Narayanasami said lending rates are bound to come down because the cost of funds will come down — thanks to the 350 basis points reduction in mandatory cash impoundment (CRR) and another 2.5 percentage point relaxation in SLR requirements. On the one hand, there is liquidity and on the other, cost of funds is coming down — a happy augury for the industry.