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India Inc and bankers welcomed the Reserve Bank of India’s key interest rate cut on Thursday morning that boosted the market sentiment.
Ahead of the scheduled monetary policy on February 3, RBI stunned the market with a 25 basis point cut in repo rate signaling a downward interest rate cycle. One basis point is a hundredth of a percentage point.
Anand Mahindra, Chairman and Managing Director of Mahindra Group, welcomed the rate cut by tweeting…”Three cheers! The RBI Governor has moved from being 'Reluctant Raghu' to 'Rate-cut Raghu!'”
Taking pride in his forecast, Uday Kotak, Executive Vice Chairman and MD, Kotak Mahindra Bank, tweeted, “Pongal, Sankranti gift by RBI to cut rates! Right decision as I had tweeted a couple of days ago.”
Lending, deposit rates
The rate cut is likely to see further reduction in deposit and lending rates by banks.
Taking cues, United Bank of India was the first bank to cut its base rate by 25 bps to 10.00 per cent with effect from February 1, after the RBI announcement following an inter-meeting move.
State Bank of India Chairman and MD, Arundhati Bhattacharya , said: “The lending and deposit rate cuts will happen. We have been talking for a while now about the easing of the rate cycle. We have factored that in the deposit rates and have reduced it since October following the forward looking indicators…Yes, the way forward would be easing of interest rates. Our ALCO (asset liability committee) will discuss on the base rate cut…cannot say the timing but it is on our horizon and there is some preparedness (to cut base rate). It will also depend on our net interest margins. The fall in margins with a rate reduction will be from day one.”
Bhattacharya added: “We need to maintain the balance as the NPA (non-performing assets) pressure is not completely off and more provisions will be needed... Also, credit offtake is still below 11 per cent. For SBI, in the last 15 years we have not seen such low credit offtake. So, it will take another two quarters to see a steady pick-up in credit.”
Chanda Kochhar, MD and CEO, ICICI Bank, said, “The rate cut by RBI was widely anticipated and is a welcome move. Together with the various initiatives being taken by the government, the rate cut would strengthen the positive momentum in the economy by lowering borrowing costs as the lower rate regime reflects in bank funding costs over time. We need to continue to address the issues impeding output and investment in key sectors to leverage this momentum for growth.”
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