Jan 29, 2013, 05.30 PM | Source: Moneycontrol.com

Banks willing to pass on rate cuts, your EMIs set to fall

Banks are willing to tweak their loan rates and borrowers may find a case for transmission which in turn will spur economic activity, say bankers.

Moneycontrol Bureau

With the Reserve Bank of India cutting policy rate, institutions are expected to offer better rate of interest on loans. Banks are willing to tweak their loan rates and borrowers may find a case for transmission which in turn will spur economic activity, say bankers while speaking to the press.

Aditya Puri, CEO, HDFC Bank clarified:  "Given that you have had both the Cash Reserve Ratio (CRR) cut and a repo rate cut there will be monetary transmission. So, to get into details at this point of time whether it will base or whether it will be pockets would be premature, but I would say on behalf of most of us that there will be transmission.

Asked if home loan borrowers will see a reduction in their EMIs, ICICI Bank chairman Chanda Kochchar indicated a decline can be expected. But lending rate cut will not necessarily lead to deposit rate cut, she emphisized.

Speaking about the handicap banks face on deposits, Pratip Chaudhuri, Chairman of State Bank of India said many bank are facing flight of deposits each banks will have to assess their requirement of liquidity.

"With so many tax saving and tax exempt instruments in the market, and I can speak for State Bank of India (SBI), we are facing a lot of flight of deposits. Our interest is taxed at the highest marginal rate, whereas the mutual fund investments, even debt funds, are taxed at a very benign rate of 10 percent. They have a better liquidity arrangement. So, taking into account all of this and the deposit rate, each banks will have to assess what is their requirement of liquidity and would price their deposits accordingly," he said. 

The move however brought cheer to the realty sector. As this relaxation is estimated to release Rs 18,000 crore for deployment various financial institutions, there is an expectation that economic activity will get some boost, says Sanjay Dutt, executive managing director (South Asia) at Cushman & Wakefield. The RBI has already allowed established real estate developers and housing finance companies to raise up to USD 1 billion through ECBs, helping entities to raise cheaper funds and tide over their liquidity issues, propelling the real estate sector on the whole.

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