Twitter
Advertisement

No rate-cut goodies this Diwali

In inflation vigil, central bank keeps key rates unchanged citing risks from food price shocks geo-political developments

Latest News
article-main
RBI governor Raghuram Rajan (C) along with deputy governors at the press conference after announcing the central bank’s bi-monthly monetary policy review in Mumbai on Tuesday
FacebookTwitterWhatsappLinkedin

This festive season customers looking for a cut in interest rates will be a disappointed lot. They will have to be content with banks just waiving off processing fees and increasing the tenure of their loans.

The banks are unlikely to slash rates as the Reserve Bank of India (RBI) continues its guard on inflation without softening the key policy rates that signal interest rates in the system.

With the RBI holding rates, the equated monthly installments (EMIs) on home loans and auto loans are unlikely to drop anytime soon.

Raghuram Rajan, governor, RBI, said, "I don't want to hold interest rates up, but unless we do that inflation will continue to throttle growth in the economy.

"With international crude prices softening and relative stability in the foreign exchange market, some upside risks to inflation are receding. Yet, there are risks from food price shocks as the full effects of the monsoon's passage unfold, and from geo-political developments that could materialise rapidly," Rajan reasoned on why he was forced to hold rates in India where interest rates have been kept high to fight inflation.

The central bank retained the repo rate -- the rate at which banks borrow from the RBI -- at 8%, and kept the cash reserve ratio (CRR) -- the proportion of deposits banks have to park with the central bank -- at 4%.

The RBI forecast GDP growth at 5.5% in 2014-15 and 6.3% the following year, reinforcing growing hopes that the Indian economy may be out of the slump.

"Much will depend on the government policy initiatives and how quickly the underlying problems in the economy are addressed," said Rajan.

Bankers said the move was not surprising considering that the stated objective of RBI was to tackle inflation. Interest rates, they said, will stay where there are. Credit and deposit growth, according to them, are dependent on inflation. Once inflation is on a firm downward slide, banks say they will be in a better position to soften interest rates.

Arundhati Bhattacharya, chairman, State Bank of India (SBI), said, "For the festive season, we have already waived off processing charges and besides, there is not much we can do. Maybe a few basis points here and there, but nothing across the board."

Besides dealer discounts and builders offering gifts on housing projects consumers do not have anything to look forward this festive season unlike other years when banks launch special schemes to attract new borrowers.

Jairam Sridharan, president - consumer banking, Axis Bank, told dna, "This time banks will desist from giving any festive offers by cutting interest rates. We for example have only dealer discounts in select geographies and waiver in processing fees. There is no room to cut rates further. We have plenty of offers on our credit cards and debit cards."

Chanda Kochhar, managing director and chief executive officer, ICICI Bank, echoed similar views. She said in a press conference, "We are waiving off processing charges on the retail loans but no other festive offers. The auto sales have picked up and customers are buying cars."

Most banks are running special offers on their debit and credit cards such as cash backs and discounts. Some banks also feel that the RBI has dovish outlook on rates and that an interest rate easing is around the corner.

Shyam Srinivasan, managing director and chief executive officer, Federal Bank, said, "The tone of the policy was dovish and one could expect softening stance on rates in a few quarters, contingent of course on data that supports the choice.

Find your daily dose of news & explainers in your WhatsApp. Stay updated, Stay informed-  Follow DNA on WhatsApp.
Advertisement

Live tv

Advertisement
Advertisement