The recent spate of downward revision in deposit rates by banks is an indication that lending rate cuts are on the horizon, according to State Bank of India chairperson Arundhati Bhattacharya.
Over the last week ICICI Bank, HDFC Bank and SBI have cut their retail term deposit rates by 25-50 basis points on select maturity buckets.
“Obviously the fact that we are adjusting rates on the deposit-taking side means that going forward all of us are seeing a lending rate cut. That is absolutely clear.
“But exactly when it will happen is not really something that I can tell you right now,” she said.
The SBI chief elaborated that banks are waiting for signs of credit pick up.
“When we cut lending rates, income comes down. We need some other ways of making up that income in order to keep paying the depositors their interest. That can always happen if the credit growth is quite robust and volumes pick up,” she explained.
On whether a repo rate (interest rate at which banks borrow short-term funds from the central bank) cut could trigger a lending rate cut, the SBI chief pointed out that banks are flush with liquidity and they are hardly taking anything from the repo window. “Repo rate is a signal (for downward movement in interest rates). So, a 25 or a 50 basis points cut in repo rate doesn’t really make all that great a difference,” she said.