Comments
With Bank of India taking the lead in cutting its lending rate on Wednesday, other public sector banks (PSB) are likely to follow suit, say bankers here.
However, the cut may only marginally improve the credit pick-up, which has been lacklustre so far in the current fiscal.
Banks will cut base rates as liquidity in the banking system has improved substantially.
This is underscored by the fact that the RBI received and accepted just 14 bids (against 23 bids on Tuesday) aggregating Rs 17,215 crore (Rs 74,780 crore) at its repo window.
Banks borrow short-term funds from the repo window to tide over short-term liquidity mismatches.
A Union Bank of India official said the bank is likely to cut its base rate too.
“Cost of funds has come down to some extent in the first quarter,” the official said. Currently, the bank’s base rate is at 10.25 per cent.
The Reserve Bank, in its June policy, had left the repo rate, the rate at which the RBI lends short-term funds to banks, unchanged at 7.25 per cent.
Scope for transmission
RBI has cut the repo rate by 75 bps since January this year, but most banks have not lowered lending rates. Bankers have said there is no scope for transmission due to higher cost of funds.
R.K. Goyal, Executive Director, Central Bank of India, said: “A base rate cut can be positive for the markets and help improve sentiments. Though cost of funds has come down by about 40 bps in the last one year, it will remain high.”
Room for reduction
However, he said that there was still room for further reduction in the bank’s base rate. The Central Bank of India’s Asset Liability Committee is due to meet on Monday.
Among private sector lenders, Axis bank said it will take stock of the cost of funds and accordingly take a call on the base rate cut.
“However, a base rate cut would have a marginal impact on the lending rates.
“Further, the market is still not conducive for more credit off-take,” said Parthasarathi Mukherjee, President, Large Corporate, Axis Bank.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.