Yes Bank plans 100 bps cut, other private players to wait; public sector may move first.
Yes Bank on Wednesday said it was looking at a 100-basis point reduction in lending rates by December, but public sector bank chiefs, who met Finance Minister P Chidambaram on Monday, are expected to move faster.
While larger private banks are expected to wait for a while before announcing rate cuts, Yes Bank CEO Rana Kapoor said the bank intended to lower lending rates by a percentage point in December and hoped to follow it up with another 100-basis point decrease during the fourth quarter. The bank, which currently disburses loans to corporate clients at around 17 per cent, may also pare deposit rates by 50 basis points in December.
A senior ICICI Bank executive said the country’s largest lender will decide on rates over the next 10-15 days.
Bank of India Chairman and Managing Director T S Narayanasami said the cost of raising resources or deposit rates are expected to ease over the next three-four weeks and only after that banks will look at reducing the lending rates. “Rates should soften over the next 12 months, which will help protect the margins,” he said.
“Benchmark prime lending rates have to see a correction in the coming weeks,” Oriental Bank of Commerce Chairman and Managing Director A K Misra told reporters, but added that the Delhi-headquartered bank was in no hurry to cut interest rates as it has raised costly deposits in recent weeks to tide over the tight liquidity situation. The cost of funds for the bank has gone up to 7.33 per cent in the second quarter this year from 6.88 per cent during July-September 2007.
RBI has lowered the Cash Reserve Ratio (CRR), or the proportion of deposits that banks have to set aside, by 250 basis points to 6.5 per cent to infuse liquidity, while also reducing the repo rate, or the rate at which it lends to banks, by 100 basis points to 8 per cent.
During the Monday meeting, Chidambaram advised public sector banks, which control around 70 per cent of the market, to make credit available and lend to productive sectors. “The message is that it should be business as usual and funds that have been sanctioned should be made available,” said a source present at the meeting in Delhi on Monday.
The finance minister met State Bank of India Chairman O P Bhatt, BoI’s Narayanasami, Punjab National Bank chief K C Chakrabarty, Union Bank of India Chairman and Managing Director M V Nair, Central Bank of India CMD K A Daruwala, Syndicate Bank chief George Joseph and a Bank of Baroda executive director to convey the government’s stance on credit flow.
Due to tight liquidity conditions in the market, many banks had started going slow on disbursing sanctioned limits. While banks such as PNB, Union Bank and Corporation Bank have moved on offering cheaper loans after RBI pared the CRR requirements, others are expected to follow suit over the next few weeks.
