Finance News

Private banks in no hurry to cut rates

Private banks are not in a tearing hurry to bring down interest rates with credit offtake shooting up by 29 per cent and flow of deposits virtually drying up. While almost all public sector banks have reduced lending rates by up to 75 basis points, no major private bank has come out with any rate cut so far.

According to a senior banker with a foreign bank, private and foreign banks are holding on to the rates as many of them have witnessed the inflow of deposits falling in the last few weeks. "The drying up of deposits is not directly related to the global financial crisis. There was a liquidity problem in India as well due to various reasons. But things are getting normal slowly. On the other hand, if borrowers are ready to pay high interest rates, why should they reduce the rates?" he said.

"Private and foreign banks will eventually cut the rates. But they are waiting for stability to return. Otherwise borrowers will go to public sector banks. It's a tricky situation for private banks. First of all, they need more deposits to lend," said a banking source. SBI and other leading PSU banks cut lending rates by up to 75 basis points recently. Among private banks, only IDBI Bank has so far announced a rate reduction while major ones like ICICI Bank, HDFC bank and Axis Bank are yet to make any downward revisions. Private banks are non-comittal about a rate revision. "We are keeping an eye on the market dynamics and the bank will take a call on cutting rates after taking market conditions and its position into consideration. Some banks have already announced it and we too will soon take a call," said an ICICI Bank official. "We are watching the situation and will decide soon. It is inevitable that banks will cut rates after the signals from RBI. However, the bank hasn't yet zeroed in on the time-frame," said an HDFC Bank spokesperson.

According to the RBI figures, credit offtake has shot up by 29 per cent to Rs 26,15,041 crore as on October 24, 2008 as against a growth of 24.8 per cent on September 26, 2008. As SBI chairman OP Bhatt said on Thursday, "There is a huge demand for credit by corporates as in the last three months global sources of funds for business houses have dried up." In fact, when the global financial crisis escalated in late September and early October, there was a slowdown in credit offtake in India. The primary market is virtually shut with no IPOs and rights issues hitting the market. With the market conditions turning adverse, many other IPOs have been postponed. Though interest rates have come down abroad, fund-starved global banks are not very enthusiastic in extending loans.

(With inputs from Swarup Chakraborty)