Banks may cut lending rates

Banks may cut lending rates
26/12/2016 , by , in ALLIED

State Bank of India, and a few other banks are expected to announce a cut in lending rates effective early January, said people with knowledge of the matter.

That could give consumption a much-needed boost, having slumped in the wake of demonetisation as people are unwilling to spend on non-essential items amid a currency shortage.

Cash withdrawal limits are, however, expected to stay in place even after the December 30 deadline by which the demonetised Rs 500 and Rs 1,000 notes have to be deposited. At an Indian Banks’ Association meeting last week, chief executives of some large banks explored the possibility of a cut in interest rates on loans following discussions with the finance ministry, said banking sources.

Some bankers believe such a move could revive sentiment amid the dip in consumption due to the currency shortage induced by demonetisation. SBI has pegged its lending rate at 8.90% for a year, among the lowest in the industry.

The flip side to this is a possible reduction in the savings bank rate. Although there is no regulatory curb on the savings account rate, all state-run banks and large private banks have currently set it at 4%. “Post demonetisation, a number of customers have repaid their loans; many are refraining from borrowing,” said a bank chief.
“So demand for loans has disappeared but at the same time banks are flush with funds,” the bank chief said.

RBI data show bank credit rose 1.2% to Rs 73 lakh crore in the year to date (April 1to December 9) against a rise of 6.2% to Rs 69.6 lakh crore in the same period a year ago. Deposits rose 13.6% to Rs 105.9 lakh crore compared with a 7.% increase to Rs 91.8 lakh crore in the year earlier. “The ministry is in dialogue with banks on measures that can be taken to boost investment,” said the bank chief cited above.

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