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SBI’s 5 bps cut shows how tough pass-on is

Thursday, 31 January 2013 - 6:23am IST | Place: Mumbai | Agency: DNA
The State Bank of India (SBI), India’s largest lender, passed on Tuesday’s policy-rate lowering by the Reserve Bank of India (RBI), as promised.

The State Bank of India (SBI), India’s largest lender, passed on Tuesday’s policy-rate lowering by the Reserve Bank of India (RBI), as promised. By shaving its base rate by 5 basis points to 9.70%. The tokenism shows how clogged the monetary transmission routes are.

“We have just passed on whatever savings we got from repo rate cut and cash reserve ratio cut,” said a senior official of the bank after its asset-liability committee meeting.

Another official added there was no further scope to reduce deposit rates right now.
Such is the pincer in which the largest lender is operating.

Atul Joshi, MD & CEO, India Ratings and Research, the Fitch Ratings unit, said this is due to the complete lack of conviction among banks on inflation.

“If there is no conviction among them of inflation coming down, the latest rate cut will also go waste. It will be completely discounted,” he said.

“The current liquidity situation is very tight. The credit-deposit ratio is still over 75%. The rate cuts announced on Wednesday have happened on the back of the CRR cut,” said Abheek Barua, chief economist at HDFC Bank. “The cuts by banks will not happen across the board but only in selective asset lines, where there is a demand problem.”

Banks are also trying to preserve their net interest margins by not cutting lending rates deeply. Refinancing pressures and slower deposit growth rate will keep banks away from passing all the benefits to customers.

The RBI on Tuesday cut the repo rate by 25 basis points to 7.75% and the cash reserve ratio similarly to 4%.

Pratip Chaudhuri, chairman of SBI, had said on Tuesday that the benefit the largest bank got from the moves was around `250 crore.
 


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