With the fall in prices of crude oil and other commodities, India may be headed for a softer interest rate regime. Firing the first salvo towards softer rates, Axis Bank, India's third largest private sector bank, revised downwards its base rate to 10.15% from 10.25% with effect from October 15.
Accordingly, the effective rate applicable to various fund-based credit limits that are linked to the bank's base rate will reduce by 10 basis points.
While most banks have their base rate at 10%, HDFC Bank has the lowest base rate at 9.8%. Banks like Yes Bank have a higher base rate at 10.75%.
Announcing the revision in rate, Sidharth Rath, president (treasury, business banking & capital markets), Axis Bank, said the bank reduced base rate as the cost of fund has eased due to softening of interest rates based on improving liquidity and other macro-economic developments.
The crude oil prices fell to a four-year low of $83 a barrel on Thursday, raising prospects of further cuts in retail fuel prices besides bolstering the government's plans to tame inflation and cut subsidies. But with doubts being raised on the revival in global growth, it is still too early jump on the bandwagon to reduce rates, said a few bankers.
The consumer price inflation for the month of September cooled off to its all-time low of 6.46%, the lowest since India started computing consumer price index (CPI) in January 2012, led by lower food prices and fuel costs.
On September 17, SBI brought down its peak interest rate on domestic term deposits between one and three years to 8.75% from 9% earlier, while the bank raised rates by 25 basis points on deposits between six months to 210 days to 7.25%.
With the credit growth remaining sluggish at 11%, banks could be bringing down interest rates to attract customers. After remaining at sub-10 % for two consecutive fortnight, bank credit went up 11% to Rs 62,69,007 crore for the fortnight ended October 3, according to RBI data.
Mohan Shenoy, head of treasury at Kotak Mahindra Bank, said, "With the fall in commodity prices and crude oil prices, it certainly looks like India is headed for a softer interest rate regime. The liquidity situation in the money markets have improved after RBI introduced various borrowing facilities."
Banks borrowing from RBI's borrowing facility (repo window) have also come down at Rs 17,498 crore from the central bank facility, down from Rs 1 lakh crore banks were borrowing a few months back after RBI introduced the new liquidity framework by introducing various borrowing facilities like the 7-day repo, 14- day repo and the 21-day repo.
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