Mumbai, Mar 24 : Borrowers troubled by elevated interest rates will have to wait for a bit longer for relief as bankers have virtually ruled out any immediate cut in the lending rates, citing high cost of funds.
The stance comes even after the Reserve Bank delivered two successive rate cuts of a cumulative 0.50 per cent this year.
“The basic thing that is required—the cost of deposits—is still in the higher side,” state-run Union Bank of India Chairman and Managing Director D Sarkar said, explaining his bank's inability to cut rates now.
Pratip Choudhary, the chairman of the nation's largest bank SBI, also said it is impossible for his bank to cut rates in the near term.
Many state-run banks, which generally rely on the costly bulk deposits to shore up their deposit bases unlike their private sector counterpart, which mop up the low-cost savings and current account deposits, have been ratcheting up their term deposit rates for the past few months.
The poor deposit collection problems for the state-run banks were compounded with finance ministry's directive last year asking them to bring down their bulk deposit ratio to 15 per cent of their total deposits by March 31.
In a move that some experts saw as a sign of a weakness in deposit mobilisation, SBI upped its deposit rate offering by 0.25 per cent last month.
Deposits have grown only about 13 per cent during the fiscal, while credit has grown more faster at close to 17 per cent. In the absence of sufficient deposits, the credit deposit ratios for the banks go up, according to the latest RBI data.
The interest rate scenario has been at an elevated level for over two years now, after the RBI went on a 13 consecutive rate hikes between March 2010 and October 2011 with a view to fight double-digit inflation.
While inflation has not come down to desired levels, growth has been hurt badly and both RBI and the government admit the high interest rates contributed to the poor growth numbers, which is set to hit a decadal low of 5 per cent this fiscal.
When asked if the Reserve Bank is concerned that its policy actions were not getting transmitted into actual lending rate cuts by banks, Deputy Governor KC CHakrabarty over the weekend had said, “it is up to the banks, right? What will RBI do? It is a free market.”
“The RBI does signalling. If the banks are able to do that, they will do. If they have some problems, they will take some time. We're not unnecessarily worried over this,” he added.
S S Mundra, who heads of the second largest lender Bank of Baroda, said the possibility of a rate cut can be discussed only after the liquidity situation improves in the system.
Over the past several weeks, banks' overnight borrowing has been hovering near Rs 1.4 lakh crore mark as government steeply cut spending and is holding onto cash to prune the fiscal deficit.
The RBI on the Budget day had said the government would end the current fiscal with nearly Rs 1.05 lakh crore cash balance.
“Till we enter April, till there is a greater clarity on the liquidity situation, there will be no rate cut,” Mundra said.
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