The Hindu Business Line : Bankers see credit offtake picking up

Mumbai, Jan. 2 Bank deposits may soon lose their favoured status as an investment option, as banks get ready to cut deposit rates further. However, with lending rates also showing a downward bias, both retail and corporate loans would also get cheaper.

With the RBI signalling a lower interest regime by cutting key interest rates, banks say they will cut both lending and deposit rates. As most banks have just reduced their prime lending rates over the last month, this time around they are likely to cut deposit rates first.

Most bankers are also hopeful that the latest round of rate cuts will help improve the slackening credit demand and would provide the much needed impetus for corporates to carry out investment.

The rate cuts are unlikely to impact margins much, as the lower yield on advances would be neutralised by the lower cost on deposits, said bankers.

Also, banks are likely to show higher treasury profits in the second half of the fiscal, thanks to lower bond yields. This would help them write back the provisions made for treasury losses in the first half.

Positive signal

Mr T. S. Narayanasami, CMD, Bank of India and Chairman, Indian Banks Association: The RBI move is a positive signal for banks to cut rates. There are no second thoughts on that.

The cut in CRR in the backdrop of further inflation coming down will facilitate earlier early revisit of lending and deposit rates by banks. A revisit should be feasible by the first week or middle of February.

The cut in deposit and lending rates will be simultaneously. There is a lag time before the cost of deposits come down following a reduction in deposit rates. But the effect of PLR cut takes place immediately.

“But the cut in deposit rates has to be market-related. I cannot bring down my deposit rates just because the signal rates have been cut. If inflation comes to around 5.5 per cent, a one year deposit at 7.5 per cent is justifiable. But not otherwise. Or else there will be a mismatch between the rates between private and public sector banks and postal savings.”

On expected lines

Mr M.D. Mallya, CMD, Bank of Baroda: The RBI announcement was on expected lines. We need to analyse the overall situation. Obviously deposit rates will have to come down before lending rates are cut.

Overall the credit growth has been in the region of 28-29 per cent year-on-year, so farSome segments have not seen much of a pick-up in this fiscal. For instance, auto and auto ancillary, export-related textiles and steel have seen some slowdown.

In retail, other than housing, the credit offtake has been lower. In housing, the slowdown is not due to non-availability of credit, but because of deals not taking place. Both dealers and borrowers are waiting for interest rates to come down. We should be able to sustain margins because we would be lowering deposit rates as well.

In the third quarter the interest rate movement was very steep, with the G-sec yields down by about 250 basis points. Therefore, treasury is making good money. Also, with the bias on softening of interest rates and with inflation expected to ease further, treasury profits will be equally good in the fourth quarter as well.

Clear indication

Mr M. V. Nair, CMD, Union Bank of India: The RBI move is a clear indication that rates have to come down and to create impetus for investment. “We will be looking at reducing our deposit rates immediately and lending rates by February 1, because they have to be approved by the Board. But we have yet to decide by how much we would reduce the interest rates.”

Wait and watch

Ms Chanda Kochhar, Joint Managing Director and CFO, ICICI Bank: These measures would accelerate the move to a lower interest rate regime across the system. We could expect a bottoming out of government bond rates and further decline in deposit and lending rates from the current levels. This should lead to greater credit availability and spur consumption and investment.

With regards to the timing of the rate cuts by banks, we will have to wait and watch because one round of rate cuts has just got over and the impact is with a lag. The first impact will be seen in bond rates, then bank rates and then retail and lending rates. The cut in the retail lending and deposit rates will happen simultaneously.

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