Oriental Bank of Commerce cuts base rate by 10bps to 10.40%

Taking the lead after RBI’s April-June quarter credit policy announced on July 31, Oriental Bank of Commerce on Thursday slashed its base rate by 10 basis points to 10.40%. The move is expected to be followed by some mid-size rival banks and eventually translate inot lower rate of interest for borrowers.

Earlier, India’s largest lender the State Bank of India brought down its interest rates on home and auto loans by 25-60 bps. However, it did not change its base rate (at 10%) or the minimum benchmark rate below which lenders are not allowed to lend.

The Reserve Bank of India in its first quarter monetary policy reduced the requirement for the statutory liquidity ratio (SLR) by 100 bps to 23%. The decrease in SLR would likely to release Rs 60,000 crore. The liquidity easing, according to the regulator, would help create room for more increased credit for retail borrowers and companies as well.

However, it is learnt that the overall banking industry is sitting on an excess SLR of 3-4%. That move would come handy when the credit growth pick up. SLR is the portion of total deposits that banks keep in government securities like bonds.

"Currently banks are sitting on excess SLR. Going forward, the situation will not remain the same. The busy season for loan off-take will soon kick off. Lenders will then require more liquidity support. Immediately after 50 bps policy rate cut in April, many lenders could not transmit the policy as liquidity situation was tight. With an easing liquidity condition, RBI now nudges banks to cut rates," Brinda Jagirdar, general manager and head of economic research at SBI had told moneycontrol.com.

Meanwhile, the ministry of finance, according to media reports, wanted bank to reduce rates in sync with RBI policy actions. But, the lenders do not seem to be very keen on cutting rates as it will impact their net interest margin.

"We will maintain our status quo unless RBI prods us with a fresh policy rate cut. Re-pricing of assets (loans) has an immediate impact on our margin at the time of decreasing rates while the effect will be gradual on liability side (deposits). Consequently, our net interest margin will be hit instantly. However, some lenders may marginally cut base rates for the sake of RBI," said an executive director from a state-owned bank on condition of anonymity.

saikat.das@network18online.com