Bank of Baroda has cut home loan rates for new borrowers in the hope that it would generate some demand. The bank has hardly done any business in the first five months of 2007-08. A slump in demand for loans, much sharper for retail loans, has made bankers worried as the impact of subdued interest income on year-end profits is staring at them. |
Banks are concerned that while they have been piling up deposits at high costs, there has been a negligible loan growth in the first five months of 2007-08. A senior Bank of Baroda official said, "The bank has to survive in a market which is highly competitive as the home loan demand is elastic. After a series of hikes in 2006-07, the home loan demand has shown moderation. The rate cut may help to get better response." BoB has reduced interest rates on home loans by up to 50 basis points to 10-11.50 per cent. |
State Bank of India (SBI), the country's largest lender, too is considering options for triggering demand for loans, but a review of lending rates is expected some time next month, when the festival season begins. A senior SBI official said, "Banks will have to look at reducing lending rates (for new borrowers) if credit does not pick up till the end of August. We are already five months into the year and advances are more or less flat, while banks have mobilised huge deposits." |
The banks' prime lending rates (PLRs) increased by 250-300 basis points during the last one year. The PLRs of the five largest banks have increased to 12.75-15.75 per cent from 10.25-12.75 per cent a year earlier. |
ICICI Bank has already factored in a sharply lower growth in retail loans. Managing Director & CEO K V Kamath recently said the bank would now be talking of a low double-digit growth of 10-15 per cent in retail loans in 2007-08, down from earlier estimates of 25-30 per cent. The bank had seen over 40 per cent growth in retail loans in the past few years. |