Raghuram Rajan, Governor, Reserve Bank of India's (RBI) chiding to banks in his first bi-monthly monetary policy for not cutting lending rates has seemed to work. India's largest bank State Bank of India (SBI) and HDFC Bank have cut their lending base rates by 15 basis points.
In its monetary policy on Tuesday morning, RBI maintained status quo and kept repo rate and CRR unchanged at 7.5% and 4.0%, respectively. Rajan rapped on knuckles of banks and said that their argument that cost of funds is still high is nonsense.
Country's biggest bank SBI, HDFC Bank have cut base lending rates by 0.15% point to 9.85%, becoming the first major lenders to ease the rate in many months, making it the cheapest source of funds in the industry.
ICICI Bank followed suit late night on Tuesday and cut rates by 0.25% bringings its base rate down to 9.75%. On Wednesday morning, Axis Bank accounced that it is cutting down base rate by 0.20% to 9.95%.
More banks are expected to follow after RBI's Rajan gave a lashing on Tuesday.
Also Read: Notion that banks' credit cost not fallen is nonsense: RBI's Rajan
The new rate is effective April 10. SBI Chairman Arundhanti Bhattacharya said other lenders should follow the move and lower their rates. She also hinted at lowering of deposit rates going forward. The surprise cut came after Bhattacharya earlier today sought to defend banks not lowering rates despite two successive easing of monetary policy by the RBI since January.
In a post policy meeting with the reporters here, Bhattacharya, however, said: "You have to understand both ways it takes a little time for the things to pass through. And, it is not only the cost of deposits that determines this, the passing through is also determined by the amount of liquidity, the amount of credit demand and competition which also drives rates up or down. There are very many factors and repo is only one of the factors."
A cut in lending rates is something that India Inc has been demanding to boost economic activity.
Moreover, customers with flexible home loan rates will see their monthly instalments come down as well.
(With Agency Inputs)
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