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Punjab National Bank’s (PNB) asset liability committee (ALCO) is likely to meet on October 19 to take a call on the reduction in lending rates after the RBI’s recent move to cut repo rate by 25 basis points. “Our ALCO will soon meet (likely on October 19) to decide on this,” SS Mallikarjuna Rao, Managing Director and CEO of PNB, told BusinessLine .
He was responding to a query on how PNB would respond now that the RBI has cut the repo rate by 25 basis points. As of March-end 2019, PNB had deposits of ₹6.76-lakh crore, while advances stood at ₹5.06 lakh crore. It may be recalled that the RBI had, on October 4 at its monetary policy review, cut the repo rate by 25 basis points.
May squeeze profits
The RBI’s latest move has put pressure on banks to cut their lending rates, and this is likely to squeeze their profits. On their part, banks like State Bank of India have started to trim their deposit rates to protect their margins even while going in for a small MCLR cut. Already, most banks have, from October 1, linked their retail lending rates to the repo rate. Now, any cut in MCLR would help corporates get their funds at lower cost, say banking industry observers.
Cutting deposit rates beyond a point has a risk for banks as it could lead to flight of deposits to small savings, which carry a higher coupon. Since 2015, the Indian banking system is grappling with the issue of high NPAs, which has forced them to be quite cautious on the lending front.
Even large banks like HDFC Bank are facing the pressure of falling current account savings account (CASA) deposits, which had come down to 39.2 per cent in the just-ended September quarter. It is probably for the first time in over two decades that HDFC Banks’s CASA has come below 40, say banking industry observers.
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