State Bank of India, the country's biggest lender, may not cut lending rates in the near term as costs of deposits continue to be high, Chairman Pratip Chaudhuri said on Monday, after the bank lowered its deposit rates.
Scores of private and state-owned banks, saddled with high-cost long-term deposits, narrow profit margins and the threat from a rising volume of bad debts, are hard-pressed to follow the Reserve Bank of India with a cut in lending rates.
Banks had not passed on the benefit of a reduction in their reserve requirements as tight cash conditions were keeping deposit rates high.
The Reserve Bank of India has lowered banks' cash reserve ratio (CRR), the share of deposits they maintain with it, by 125 basis point since January, releasing 800 billion rupees into the banking system.
Following the muted response from banks to its CRR easing, the RBI cut its policy interest rate by a deeper-than-expected 50 basis point last week, in part to spur faster monetary policy transmission and to give a stronger signal to banks.
"Repo rate cut has a signal impact. In terms of cost, it is not as significant as compared to CRR," SBI Chairman Pratip Chaudhuri told CNBC TV18.
"Repo rate does not have an impact on bottomlines. Transmission effect of CRR is what we are now rolling out because March was a very challenging quarter in terms of liquidity."
India's biggest private lender ICICI Bank (ICBK.NS), No. 2 state-run lender Punjab National Bank (PNBK.NS), IDBI Bank (IDBI.NS) were among the first to announce rate cuts, following the central bank.
The Economic Times newspaper had reported last week the government had ordered state-controlled banks to lower lending rates immediately. Bankers confirmed the order to Reuters.
(Reporting by Swati Pandey in MUMBAI; Editing by Aradhana Aravindan)