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SBI, ICICI, HDFC Bank Cut Rates, EMIs Set To Fall

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After a brief show of defiance, country's biggest bank SBI and private sector lenders ICICI and HDFC Bank late evening on Tuesday (7n April) cut their base rates by 0.15-0.25 percentage points, a move that could bring relief to corporate and retail borrowers.
This is probably the first rate cut by banks in more than a year.
ICICI Bank with 0.25 percentage point cut to 9.75 per cent was the most aggressive among the banks that announced slashing rates today.
"We have decided to reduce the base rate by 15 bps from 10 percent to 9.85 percent per annum and benchmark prime lending rate by 15 bps from 14.75 percent to 14.60 percent," State Bank of India (SBI) said in a statement.
SBI said its new rates will be effective April 10. Its Chairman Arundhanti Bhattacharya said other lenders should follow the move and lower their rates. She also hinted at lowering of deposit rates going forward.
Both SBI and ICICI Bank's new lending rates are effective from from April 10.
HDFC Bank reduced base rate 0.15 percentage point to 9.85 per cent which will come into effect from April 13.
Smaller player Laxmivilas Bank too announced 0.15 percentage cut base rate to 11.10 percent effective April 14.
The move came within hours of Reserve Bank Governor Raghuram Rajan blaming banks for not passing the benefits of two repo rate cuts to borrowers and termed as "nonsense" the lenders claim that cost of fund was still high.
"The banks marginal cost of funding (has) fallen, the notion that it hasn't fallen, is nonsense; it has fallen!" Rajan told reporters during the post policy meeting here today.
The Reserve Bank of India in its monetary policy review earlier in the day left repo rate unchanged at 7.5 per cent.
An HDFC Bank official said the decision to cut lending rate was taking in the Asset Liability Committee meeting held today after the monetary policy announcement.
The bank has also lowered fixed deposit rate by 0.25 per cent across various maturities. It has been brought down to 8.5 per cent from 8.75 per cent for maturity between 1-5 years in line with market.
The lowering the deposit rate provided headroom to pass on the benefit to the borrowers, the official said, adding, thus, the base rate was reduced by 0.15 per cent effective April 13.
HDFC Bank had last reduced the base rate to 10 per cent with effect from November 2, 2013

This followed RBI Governor Raghuram Rajan's strong words against bankers for not passing on two rate cuts to borrowers.

The lenders had showed defiance initially saying their cost of funds is too high to lower rates, which they see happening over the next two-three months. But the wind was taken out of the sail of their defiance when country's largest banker, SBI, cut  the ending rate by 15 bps to 9.85 per cent, effective April 10, becoming the first major lender to ease the rate in many months.

SBI Chairman Arundhanti Bhattacharya said other lenders should follow the move and lower their rates. She also hinted at lowering of deposit rates going forward.
The surprise cut came after Bhattacharya earlier today sought to defend banks not lowering rates despite two successive easing of monetary policy by the RBI since January.

"Between April and June, we see a repricing of deposits, which can help us get low cost funds and which in turn can help us lower our lending rates," bankers told reporters at the customary post-policy press conference at RBI today.
The comments came within hours of Governor Raghuram Rajan dismissing the bankers' alibi of high cost of funds for not cutting their lending rates as "nonsense". He hoped that easing liquidity this month will force them to slash lending rates.
"Their (banks') marginal cost of funding (has) fallen; the notion that it hasn't fallen, is nonsense, it has fallen!," Rajan said in strong remarks against the lenders for not effecting monetary transmission despite sitting on mounts of liquidity.
When sought a response to Rajan's angry reaction, SBI Chairman Arundhati Bhattacharya said, "You have to understand both ways, it takes a little time for the things to pass through.
"And, it is not only the cost of deposits that determines this, the passing through is also determined by the amount of liquidity, the amount of credit demand and competition which also drives rates up or down. There are very many factors and repo is only one of the factors." 
She further that while fixing deposit rates banks are fixed on the liability side in the sense that when we take a deposit we take it a particular cost. And, therefore to reprice it we have to ensure our asset base on the basis of marginal costing itself it would be something that if we even think about doing it, it will have to have a very long transition period.
It can be noted that after the two unscheduled cuts to the tune of 0.25 per cent each on January 15 and March 4, only two small banks -- United Bank and State Bank of Travancore -- have cut their lending rates. 
"It can't happen tomorrow. This means that when rates go down depositors will start getting much less and when the rates go up the borrowers will have to pay much more," Bhattacharya argued.
She was, however, quick to add that "because it is an easing cycle, internally we believe that inflation will come down and our inflation prognosis is lesser than what RBI has given today. Given the easing cycle, the rates are definitely going to come down."
She also said that their asset liability committee will be meeting this week to take a call on rates.
HDFC Bank's Aditya Puri chipped in saying base rate cut is a function of the deposit cost.
"If the deposit cost goes down, then there will be a base rate cut. If it doesn't there won't be any base rate cut.
However, we feel between now and June, there should be repricing of cost and that will lead to a lower cost of funds for borrowers," he said.
ICICI Bank's Chanda Kochchar also supported the SBI chief saying it not just the repo rate change that determines the base rate change, it depends on cost of funds, deposit mix, liquidity situation and also on credit off take.
However, Bank of India chairperson Vijaylaxmi Iyer said, "the impact of reduction in cost of deposit experienced during the last quarter will encourage banks to pass on the benefit to customers. Retail borrowers may see lower EMIs." 
But, she did not specify how soon that may happen.
On the issue of bad loans, bankers lobby IBA chairman and Indian Bank head T M Bhasin said the lenders are optimistic that coming quarters will be better than the past few years, while other bankers refused to specify saying this is the silent period.