DNA Money Edit: Why banks postpone plans to slash lending rates?

Three weeks after the Reserve Bank of India (RBI) governor Shaktikanta Das surprised with a 0.25% cut in interest rate, banks have seldom obliged the central bank with a cut. After the State Bank of India (SBI) slashed five basis points on home loans of up to Rs 30 lakh following the RBI move, the state-owned Punjab National Bank on Thursday reduced the marginal cost of funds based lending rate (MCLR), which determines the lending rates for commercial banks, by 10 basis points. One basis point is equivalent to one-hundredth of a percentage point.

India Inc had cheered the RBI's move, hoping that it would encourage banks to lower lending rates, thereby stimulating consumption and investment demand to boost the slowing economic growth. The GDP numbers released on Thursday underlined the slowdown in India's growth as the third quarter reported a slower than expected growth of 6.6%. The finance minister as well as RBI governor had met bankers to nudge them to reduce lending rates, but banks have expressed their inability to do so.

SBI chairman Rajnish Kumar clarified that the bank did not have any headroom to cut lending rates. It had refused to cut MCLR saying the bank is not in a possible to cut rates now as other banks are offering significantly higher interest rates on deposits. In fact, most banks are staring at a similar situation.