Bank Interest Rates Expected To Tumble Over Coming Months
State Owned banks are expecting to lower their lending rates even further in February. Currently benchmark prime lending rates of state owned banks range between 12 and 13.25 per cent and some public sector banks have cut their lending rates three times since the RBI started its interest rate easing cycle.
There are some banks however such as IDBI Bank which have yet to cut their lending rates for a second time, though their deposit rates have been cut to lower funding costs.
A government spokesperson told the Business Standard “We have not asked banks to lower rates just yet. We are waiting for all of them to complete one round of cuts and we will then take up the issue. But the next round should be in February. For the smaller banks, the transmission of the lower deposit rates will take some time and that is what is delaying a reduction in lending rates,”
Deposit rates are expected to fall further over the coming weeks with India’s largest bank SBI expected to review rates by the mid January. Economists from HDFC Bank said that they expect deposit rates to fall by between 75 to 125 basis points by March, whilst they expect lending rates to be cut by between 50 to 75 basis points in the same time period.
The RBI has reduced official interest rates by cutting the Repo Rate by 350 basis points since October. The RBI has also moved to increase liquidity by reducing the Cash Reserve Ratio (CRR), the ratio of deposits that must be held with the central bank by 400 basis points, meaning banks have had more funds available to make new loans. The measure has meant that since October, there has been Rs 30,000 crore or US $ 6.25 billion worth of liquidity pumped into the banking system. The Reverse Repo, the rate at which the banks can park excess funds with the central bank has also been slashed by 200 basis points since October.
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