Cheaper loans: Banks start slashing rates, more to follow

Saikat Das
Moneycontrol.com 

Now you have reasons to cheer! Your home or car loans are going to get cheaper.
A day after state-owned IDBI Bank kicked off the rate-cut cycle, three banks including ICICI Bank, Punjab National Bank and Bank of Maharashtra (BoM) on Thursday slashed their lending and deposit rates to the tune of 10-25 basis points. Many more banks including State Bank of India, Central Bank of India Corporation Bank, Indian Overseas Bank and IndusInd Bank are likely to follow the suit soon.
“We have not yet held our asset committee (ALCO) meeting. It will happen shortly. Accordingly, we will come out with our rate cut decision,” Santosh Nair, Deputy Managing Director, SBI briefly told Moneycontrol.com.
Similarly, Indian Overseas Bank and Corporation Bank would hold their ALCO meet on Friday itself. At the time of writing this article, Central Bank is learnt to be holding its ALCO.
“Our ALCO will meet tomorrow to take a call on rate cut,” said M Narendra, Chairman and Managing Director, Indian Overseas Bank.
“Rate cut is a function of the cost of deposits. We will cut both lending and deposit rate, if decided. We have to adjust the cost of earlier deposits, which were offered at a higher rate, with the future cost of deposits that may be offered at a lower rate.”
According to senior banker at Corporation Bank, the lender will consider interest rate cut in tomorrow’s meeting in order to stay competitive.
India’s largest private sector lender ICICI Bank reduced its base rate and prime lending rate by 25 basis points each to 9.75% and 18.50% with effect from April 23, 2012. Loans upto 30 lakh will now be available at 10.50%. For Rs 30-75 lakh rate stands at 11% while loans above Rs 70 lakh is at 11.50%. Deposit rates for various fixed retail schemes fell by similar 25 bps.
Public sector lender Punjab National Bank has also decided to cut interest rates on term deposits of less than Rs 1 crore by 25-50 bps in select buckets.
In its 2012-13 annual monetary policy held on April 17, the Reserve Bank of India decreased its policy rate or repo rate by 50 bps. Repo is the rate at which banks borrow money from RBI. Currently, it stands at 8%. Initially, banks indicated no immediate rate cut following RBI policy action. Later, lenders started reducing interest rates in a bid to transmit the regulator’s policy action faster than expected.

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