Union Bank cuts rates to 10.50%, sees no stress on NIMs

Union Bank's rate cut may seem lower than its peers, but executive director SS Mundra explains that it is actually at par with the industry. "In December we had passed on a 10 basis point reduction, so effectively we are at par," he explained.

The bank cut its base rate by 15 basis points to 10.50% after the central bank cut key policy rates by 50 basis points last week.

Mundra goes on to say that this reduction in interest rates will not impact net interest margins. "With the release of CRR and all this realignment, we expect to maintain the NIM we clocked in the last quarter in the last year," he said.

Below is an edited transcript of his interview with Latha Venkatesh and Reema Tendulkar. Also watch the accompanying video.

Q: Why only 15 basis points cut because we have seen a fairly sharp fall in CD rates?

A: If you recollect, in December we had passed on a 10 basis point reduction and now it is further 15 basis point reduction, so effectively we are at par with the peer group with our base rate at 10.50% now.

On top of that, we have tried to give a fair deal to the depositor. So on the short hand, we have chosen to do an upward revision and in the longer end there is some downward revision which is also not very significant.

Q: What about deposit rates, how much have you cut them by?

A: For the deposit rate, we have realigned it at the shorter end by increasing it from 15 basis point to 25 basis point, that is within one year. Beyond one year there is some reduction, but that is in the range of 25-40 basis point.

So effectively, looking at the prevailing liquidity conditions and the rate which have moved, we have taken a balanced view.

Q: Any impact we will see on your net interest margins?

A: With the release of CRR and all this realignment, we expect to maintain the NIM we clocked in the last quarter in the last year.