IDBI Bank, SBT cut lending rates

With limits on deposits and withdrawals continuing to affect normal banking business for the second consecutive month and with no immediate respite in sight, banks have started lowering interest rates to rev up lending operations.

IDBI Bank and SBI associate State bank of Travancore (SBT) are the two banks to announce reduction in lending rates after SBI's rate cut last month, immediately after the 8 November demonetisation of Rs500 and Rs1,000 notes.

IDBI Bank reduced its lending rate by 15 basis points. Following the revision, IDBI Bank's one-year MCLR stands at 9.15 per cent and the base rate, or the minimum lending rate at 9.50 per cent. Since April, IDBI Bank has lowered its MCLR by 30-60 basis points across tenors.

''The reduction in the MCLR is expected to positively impact loan growth; both in the retail consumer segment and in corporate sector lending, thereby supporting growth impulses in the economy,'' IDBI Bank said in a statement.

State Bank of Travancore (SBT) also slashed benchmark lending rate by up to 0.3 per cent. The bank has reduced marginal cost of funds based lending rate (MCLR) by 0.25 per cent to 9.20 per cent from 9.45 per cent for 1-year tenure, SBT said in a statement.

Other banks, too, will have to lower their lending rates, mainly because of the huge deposit accretion due to demonetisation. However, lending rates could rise soon after money was withdrawn from accounts on normalisation of the cash crisis, a banker warned.

''It is all formula driven and we are not compelled by anyone. Our cost of funds has come down, therefore, we are lowering rates but when the cost of funds rises due to withdrawals, we may have to increase rates going by the formula. But that should take about six months,'' a banker said.

Even as the cash crunch persists and  bank branches struggle with inadequate cash supply, the government and bankers are hoping the situation will normalise soon.

Meanwhile, on Friday, financial services secretary Anjuly Chib Duggal told bank chiefs in a video conference to maintain adequate cash supply in rural areas and to ensure that all ATMs were functional.

Also, news of ATMs running dry has not gone down well with the government, given the cash supply from the RBI has increased recently.

With the focus on cash management and improving logistics, bankers have been asked to push more for digital banking and improving the payments infrastructure.