The Hindu Business Line : ‘Lending rates may drop by another 50 bps’

Bangalore, April 1 Lending rates are likely to drop by another 50 basis points in the coming weeks, according to the Indian Bank Chairman and Managing Director, Mr M.S. Sundara Rajan.

Speaking to reporters here on Tuesday, Mr Sundara Rajan said, “We will pass the benefits of increased liquidity in the financial markets to borrowers.”

He said that deposit rates would also come down, below the small savings rate of 8 per cent. At present, banks have been balking and reducing deposit rates, arguing that competition from the Postal Deposit Schemes was preventing such a reduction.

“We have to protect our net interest margins,” he said and added that despite the reduction in rates, deposit inflows are unlikely to be affected. “Deposits are not a function of interest rates alone We will align some of our deposit rates,” he added.

When asked if lending rates would impact retail loans, Mr Sundara Rajan said, “There will be a definite reduction for the housing sector, in view of the low risk weights. But I don’t see any drop in rates for personal loans, where the risk weights are substantially higher.” Under Basel II, the risk weight on retail assets is 50 per cent.

He also said that banks were well capitalised. “One of the factors that have prevented asset growth, despite high capitalisation, is the fear factor.” He, however, added that Indian Bank had grown its credit by 27 per cent during the current financial year. The growth had taken place, both in term and working capital loans. The trend, he said, would be maintained in the next financial year as well. Indian Bank had opened 100 new branches in the current financial year.