RAJAN EFFECT. Loans set to get cheaper, say bankers

With the RBI slashing its policy repo rate by 50 basis points, banks will cut their base rates and may aggressively roll out festival loan offers at lower interest rates during the upcoming festival season. State Bank of India was the first bank to respond to the repo rate cut, slashing its base rate by 40 basis points to 9.30 per cent.

Calling the fourth bi-monthly monetary policy review a “pro-growth monetary policy”, bankers said at least 50 per cent of the repo rate reduction will be passed on to consumers.

Ashwani Kumar, Chairman, Indian Banks’ Association, and CMD, Dena Bank : Frontloading 50 bps reduction in the repo rate reinstates the confidence of the RBI to manage the inflation trajectory in the medium term…Banks have already passed on the benefits of the previous cuts (of 75 bps) by 30 basis points. Going forward, the pace of transmission could be faster due to reduction in deposit rates initiated by banks over the last few quarters. With the festive season round the corner, reduction in base rates by banks could boost sentiments as well as credit growth.

Arundhati Bhattacharya, Chairman, SBI: Overall, the policy announcement has a slew of positive surprises, with the most notable being the projection of a benign inflation trajectory even throughout FY17 and reaffirmation of a continued accommodative policy.

Chanda Kochhar, MD and CEO, ICICI Bank : Clearly, interest rates will come down… Base rates will come down and a large part of it will get transmitted. It should mean lending rate cut could be more than half (of the repo rate cut). Further cuts will happen. It is always with a lag.

Aditya Puri, CEO and MD, HDFC Bank : As of now, we find the economy will pick up; so obviously demand will increase. If that pick-up doesn’t happen and supply exceeds demand as far as credit is concerned, then obviously you will see a drop in deposit rates. Yes, with this rate cut and if small savings rates will be lowered, there is elbow room to cut deposit rates.

Rana Kapoor, MD & CEO, YES Bank : This consolidated action will also prompt monetary policy transmission. Going ahead, multi-year low commodity prices, expected monsoon outturn along with tailwind of global disinflation, in my opinion, will continue to offer enabling conditions for further easing in order to support economic growth.

Vishwavir Ahuja, MD and CEO, RBL Bank : The RBI has delivered beyond expectations and this should give a new lease of life to the domestic manufacturing and infrastructure sectors.

Melwyn Rego, MD & CEO, Bank of India : The RBI policy is pro-growth. The reduction in ceiling on statutory liquidity ratio under the held-to-maturity category will help create long-term liquidity in the banking system. Banks will be able to pass on the cut in the repo rate to the lending rates.

Keki Mistry, Vice-Chairman and CEO, HDFC : By increasing the investment limits for foreign portfolio investors in G-Secs, the RBI has taken into account the possibility of an interest rate increase by the Federal Reserve. This move will ensure foreign inflows and prevent currency volatility. From a housing finance perspective, the proposal to reduce risk weights is a positive. However, there is a need to define ‘affordable housing’ as there are huge variations in prices between metros and outskirts.

SR Bansal, CMD, Corporation Bank : The repo rate is in line with the requirements of the overall economy.

Inflation and the fiscal deficit are within comfort levels, and the various steps taken are bound to accelerate growth.

P Jayarama Bhat, MD and CEO, Karnataka Bank : The frontloaded rate cut at this juncture, supplemented by administrative reforms from the government, is expected to rein in the deterioration of asset quality and bring back the growth momentum.

George Alexander Muthoot, MD, Muthoot Finance : With the pro-growth stance of the RBI, it gives a clear hint to India Inc to push for growth and take investment decisions as it can now foresee rates to soften further.

Anand Krishnamurthy, MD & CEO, Catholic Syrian Bank : The 50 bps rate cut is a proactive measure that is ahead of market expectations and very necessary in the current context. Small and marginal enterprises, in particular, will benefit from lower interest rates.

Chandra Shekhar Ghosh, Founder and MD, Bandhan Bank : The repo rate cut will act as a booster dose for economic growth. If the government decides to cut small savings rates, banks will be in a better position to cut deposit rates and that will lead to faster transmission of the monetary policy. In other words, banks will be able to cut loan rates faster.

VG Mathew, MD & CEO, South Indian Bank : With transmission of the rate cut by banks, lending rates will ease, facilitating faster economic recovery. The proposed reduction of risk weight applicable to individual housing loans will enable banks to pass on the benefit to borrowers in this segment.

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