Passing RBI rate cut to borrowers may take 1 or 2 quarters: Official

Chennai, Sep 29 (IANS) Passing the Reserve Bank of India’s 50 basis point rate cut by commercial banks to their borrowers may take around one or two quarters, a top official of City Union Bank said on Tuesday.

“The direction and the quantum of rate reduction are clear. What remains is the timing for the banks to pass on the rate cut to their borrowers,” N. Kamakodi, managing director and CEO of City Union Bank, told IANS.

He said reduction in bank interest rates on deposits will also take one-three months.

Kamakodi dubbed the RBI’s cut on short-term lending rate to banks by 50 basis points as a “pleasant surprise” as the industry was expecting cut of only around 25 basis points.

According to Kamakodi, the bank’s lending rate was determined by demand and supply.

“The growth of deposits has overtaken credit growth now. Some banks have already reduced their lending rates by quarter to half percent, based on the earlier rate cuts by the RBI,” Kamakodi said.

RBI Governor Raghuram Rajan, in his fourth bi-monthly monetary policy statement for the current fiscal, said the markets/banks have passed on the earlier rate cuts only to a limited extent.

“Median base lending rates of banks have fallen by only about 30 basis points, despite extremely easy liquidity conditions,” the governor said.

“It is a fraction of the 75 basis points of the policy rate reduction during January-June, even after the passage of eight months, since the first rate reduction by the Reserve Bank. Bank deposit rates have, however, been reduced significantly, suggesting further transmission is possible.”

Kamakodi said the RBI has till date cut the policy rate by 1.25 percent and some banks have already cut their lending rates.

He said there will not be much of a difference between public and private banks in their lending rate reductions but the timing of the reduction may vary.

Kamakodi said the banking sector is expected to log a credit growth of around 10-13 percent this fiscal.

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