Banks looking at reduction in lending rates

Scheduled commercial banks in India are looking at a reduction in lending rates, after the Reserve Bank of India (RBI) today announced a 25 bps across-the-board reduction in key policy rates, including the repo rate, cash reserve ratio and the marginal standing facility (MSF).

K R Kamath, chairman of industry body Indian Banks' Association (IBA) said in a post-policy conference today that banks will cut lending rates after the RBI reduced its key interest rates by 25 basis points.

While the reduction in rates was not substantial, banks seem to be happy that RBI opted to reduce both reserve ratios and lending rates, giving more leeway for banks.

The RBI lowered its key policy rate for the first time in nine months on Tuesday, but struck a cautious note on further easing as it awaited the government's upcoming budget statement on how it intends to control ballooning deficits – both internal and external.

Pratip Chaudhuri, chairman of the country's largest lender, the State Bank of India, said banks are likely to cut lending rates. According to him, the repo rate cut and CRR reduction will lead to Rs300 crore relief for SBI.

SBI's Asset Liability Committee will meet on Wednesday to discuss the possibility of a rate cut.