PSBs cut rates for Diwali, will pvt banks follow?

Maybe it's a nudge from the finance minister or the RBI easing liquidity. It may also be it's a direct effort to boost retail growth in a declining corporate credit scenario, but this festive season PSU banks have begun offering discounts on home, auto and personal loans reports CNBC-TV18’s Ekta Batra and Archana Shukla.

Also Read: Cut interest rates to revive retail credit: PNB's Kamath

Here is some good news for those hoping to buy or a car or a home this Diwali. Four PSU banks have announced festive offers that include a slashing of interest rates. - State Bank of India has reduced interest rates on car loans by 20 bps to 10.55 percent valid till Jan 31.

- Punjab National Bank too has launched a special offer for select loans upto Jan 31 which includes car loans at 10.65 percent interest, two-wheelers at 12.25 percent and personal and consumer durable loans at 12.75 percent. -Similar offers have also been introduced by OBC and IDBI, both reducing rates on four-wheeler, personal, and consumer durable loan rates by 25 bps.

- While home loan rates have been left largely untouched, as an added incentive most banks have waived the processing fee on these loans. But given that there is still no clarity on the finance ministry's capital infusion plan, the question is why are these banks going in for rate cuts now? Speaking to CNBC-TV18, PNB maintains that the latest move is not to oblige the FM but a direct impact of falling corporate credit and the RBI's recent MSF cut. KR Kamath, CMD, PNB says, “If there is no corporate credit picking up and if we have to increase our credit, you should always look for a safer credit which you can lend and today's market offers retail as the safest bet. RBI announced certain reduction in the MSF rates also. To that extent, the cost of fund is likely to come down.”
 
However, Kamath says the overall impact of any incremental increase in the loan book is expected to be little since these offers are focused on boosting retail credit. Retail credit comprises only a small part of a bank's portfolio. Further, no big impact on margins is expected as volume of these loans will not be high in the total loan book, he adds.  With not too much of a shakeup on the books expected, all eyes now turns to the private sector biggies to see if they too follow suit.