On Saturday the Reserve Bank of India (RBI) announced cut in two key rates intending a move towards lowering of interest rates but you don’t expect sharp fall in the lending rates as there is little headroom to cut deposit rates. You will still have to wait for home loan, auto and personal loans to come down to a level you consider affordable.
However bankers are of view that it would have only a limited impact and also did not clearly stated when they will be reducing lending rates.
Meanwhile RBI has reduced the repo rate, its short-term lending rate, for the third time in less than two months, by 100 basis points (bps) to 6.5 per cent. This is its lowest level in two-and-a-half years. The 100 bps make one percentage point.
Speaking in response to this, T.S. Narayanasami, chairman, Bank of India and Indian Banks’ Association, and member of the finance ministry’s liquidity committee, said: “We cannot specify the date from when interest rates will start falling.”
RBI has also cut the reverse repo rate, the overnight rate at which it borrows from banks, by 100 bps, to 5 per cent, a three-year low. The new rates will come into effect from Monday, December 8.
“Today’s measures are positive and decisive signals for banks to cut interest rates,” RBI governor D. Subbarao said.
However deposit rates have to be cut before banks can cut lending rates. Ashish Parthasarthy, head of trading, HDFC Bank, said: “The loan-to-deposit ratio is quite high at 75 per cent. This will prevent a sharp reduction in interest rates on deposits and, as a consequence, on loans.”
Chanda Kochhar, joint managing director ICICI Bank, too, kept quite on when her bank will cut rates. “ICICI Bank continues to monitor interest rates on a daily basis and will take necessary measures accordingly,” she said.
In addition to cutting the two key rates, RBI also announced Rs 11,000-crore refinance facility for the National Housing Bank (NHB) and the Small Industries Development Bank of
The steps announced on Saturday will instill additional liquidity of Rs 3 lakh crore into the Indian financial system.
In addition RBI announced a few more steps to get the economy back on track. It permitted certain categories of banks, which had issued foreign currency convertible bonds, to buy them back as they are now available at attractive valuations. And exporters, who have been badly hit by the global meltdown, will also now get access to subsidized credit.
