Apr 17, 2012, 05.47 PM IST

RBI Credit Policy: Here's what the country's top bankers are saying

State Bank of India, the country's largest lender, will cut lending rates on loans that have high interest rates, chairman Pratip Chaudhuri said on Tuesday addressing the media.

Closing Bell at 02:30 pm

Share . Email . Print . A+

Pratip Chaudhuri, chairman, State Bank of India

State Bank of India , the country's largest lender, will cut lending rates on loans that have high interest rates, chairman Pratip Chaudhuri said on Tuesday addressing the media. However, he added banks will face challenging situation with respect to deposit growth. "I expect consumer, farm loans to see strong growth in FY13," he told reporters.

Earlier in the day, the RBI cut interest rates for the first time in three years by an unexpectedly sharp 50 basis points to give a boost to sagging economic growth, but warned that there is limited scope for further rate cuts.

However, leading private sector lender HDFC Bank was not too keen on jumping the rate cut wagon. Managing director Aditya Puri said the bank needs to get significant deposits at favourable rates to bring its cost of funds down.

"The fact of the matter is deposits have not grown at the rate that is good for the banking system and while those deposits don’t grow necessarily at that rate, there will be some cut in deposit rates. But you would have to be very careful," he reiterated.

Puri expects liquidity situation to improve as the government spending increases.

The Reserve Bank's decision to cut lending rate by 50 bps will encourage investments, Finance Minister Pranab Mukherjee said on Tuesday, while assuring the government will also take additional steps to boost growth and control price rise.

Lenders have told the Reserve Bank of India (RBI) that risks to asset quality from the aviation sector have reduced, Governor Duvvuri Subbarao said on Tuesday at a post-policy media conference.

All said and done, chances of further rate cuts cannot be taken for granted, believes Chanda Kochhar, MD and CEO of the country's largest private sector lender, ICICI Bank . "It (interest rate cuts) will have to be across board. In fact, the deposit rate decrease is absolutely required because otherwise the cost of funds for the banks would not go down," she emphasized.

Sluggish capital investment has exacerbated bottlenecks in the Indian economy, bringing down its capacity for non-inflationary growth to an estimated 7%, from 8.5% before the global financial crisis. Corporate India, dejected over government inaction that has thwarted capacity expansion, has long clamored for rate cuts.

Kochhar said the demand for investments in new projects is muted.

Also read: Lending rates unlikely to be cut soon: HDFC's Parekh