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| Edited By: Vishwanath Nair |Source: DNA |Updated: Mar 18, 2018, 05:10 AM IST
Tired of waiting for the Reserve Bank of India (RBI) to cut rates and give them a cue, commerical banks are taking matters into their own hands. While substantial cuts in bank base rates have not yet happened, lenders have begun giving small reliefs in various products, to ensure that the customer gets a fair deal.
A case in point is the base rate cut by Union Bank of India and Federal Bank last week. They slashed their base rates by 10 basis points (bps) to 10.65%. “This was mainly because at 10.75%, we were not very competitive. By this rate cut, our base rate is in line with most banks,” says Abraham Chacko, executive director of Federal Bank.
Last month, State Bank of India (SBI) cut interest rate on its educational loans by up to 1% (or 100 bps) across various tenures. At 13.50%, educational loans up to `4 lakh have become cheaper by 25 bps.
Loans between `4 lakh and `7.5 lakh, however, will be available at 13.25% against 14.25% earlier, a sharp reduction of 100 bps.
Loans beyond `7.5 lakh will cost 25 bps less at 12%. SBI is also offering educational loans for girls at a discount of 50 bps.
Similarly, Central Bank of India (CBI) had announced reduction on interest rates for its home loan customers across various products. CBI had earlier reduced home loan rates by 25 bps under a festival scheme. As a special gesture to its housing loan customers, the bank has also allowed elongation of repayment schedule without increasing monthly installments.
“We would like to place ourselves in the premier position. We would like to compete with big public sector and private sector banks. We reduced our rate of interest to be competitive with them,” says Ram Sangapure, general manager-retail banking, CBI.
CBI has also reduced interest rate on housing loans up to `30 lakh to 10.75%. Similarly, interest rate on housing loans of `30 lakh to `75 lakh has been reduced to 11%. Rate on housing loans of `75 lakh and above has been reduced for the tenure up to ten years from 11.50% to 11.25%; and for the tenure above ten years and up to 25 years, from 11.75% to 11.25%.
Despite giving various dollies during the festive season to persuade customers to borrow more, banks recorded dismal credit growth. High interest rates and tight liquidity conditions ensured that people postponed their borrowing plans.
A Care Rating report early this month said that for the period from March 25, 2011 to December 30, 2011, growth of credit to industry decelerated to 14.7% from 18.3% the previous year. The deceleration may be largely attributed to spillover effects of global economic slowdown, high commodity prices and high interest rates.
Although commodity prices, especially those of metals, have shown some softening, oil still has been ruling high. With headline WPI standing at over 9.5% in first half of FY12, the regulator continued to maintain a hawkish stand and cumulatively increased the repo rate by 175 bps in FY12, the report said.
But the situation may improve soon. “Given slowing credit growth, we expect the RBI to reverse its policy stance to protect growth, especially as inflation peaks off. We expect the RBI to cut repo rate by 125 basis points through FY13 in a largely front-loaded policy action,” says an Enam Securities report released early this month.
Lending rates are expected to come off 150 basis points while deposits are likely to pick up with a lag due to nominal interest rates. Historically, falling policy rates have boosted credit growth and banks have been a big beneficiary, the Enam report said.
