Private banks may not cut lending rates

Mumbai, Mar 2: Unlike public sector banks, the private sector banks, including the second largest ICICI Bank, may not cut retail lending rates in near future due to volatile global financial markets.

Despite suggestions from the regulatory authority Reserve Bank of India and Union Finance Minister P Chidambaram, most of the private sector banks are of the view that there is minimal scope for bringing down the lending rates, at this juncture, when the global financial markets are witnessing conditions of turmoil. ''The financial market is witnessing extreme volatility in cost of fund as well as periodic socks in liquidity projection,'' HDFC Bank Chief Economist Abheek Barua told UNI.

In fact, in the month of March and April, the global financial markets are likely to face a liquidity crisis in the backdrop of possible Federal Reserve rate cut, which would probably reflect in the Indian financial markets, Mr Barua said.

''Hence, the banks would prefer to wait-and-watch rather than promptly cut the lending rates,'' he added. Rate cut is a complex business decision depending on liquidity projection, cost of funds and credit fund, Mr Barua said.

However, he conceded that the interest margin provided by the Reserve Bank of India, at present, had room for rate cut.

On condition of anonymity, Chief Economist of a frontliner private sector bank told to the sources ''Uncertainty-premium in the market has gone through an extreme variation, thus, it would be difficult for a bank to cut lending rates. As per the current scenario, the gap between the lending and deposit rates is also very thin.'' ''Lending rate cut is only possible if there is enough space to move and adjust the burden,'' he added.

In February, major public sector lenders, including State Bank of India, Punjab National Bank, Union Bank of India, Bank of India, Bank of Baroda and Dena Bank, had cut the benchmark prime lending rate by 25 to 50 basis points while hardly any private sector bank has cut its retail lending rates.

Bankers, who were not willing to be quoted, said that reduction in lending rates was unlikely to lead to an increase in demand for home loans.

When asked about the rate cut by public sector banks, they said that the marginal rate cut by 25 to 50 basis points would hardly bring any change in the credit off take as residential property prices had sharply gone up by at least 100 per cent over the last couple of years.

According to data, the growth in retail lending for purchase of homes, cars, trucks and consumer durables had slowed significantly with interest rates on loans rising by about 400 basis points over the last one year, which led to the year-on-year growth in total credit dropping to 22.8 per cent.

UNI