Expect more lending rate cuts as RBI nudges banks

Bankers may be forced to reduce the lending rates further, with Reserve Bank of India governor Shaktikanta Das stressing that the rates are not moving in tandem with cuts in the policy rate.

The central bank has slashed the repo rate by 0.75%, but banks have reduced rates only by 0.1% to 0.2% during the calendar year 2019, Das said in a pre-policy meeting with bank chiefs last week. The RBI's monetary policy is scheduled to be unveiled on August 7.

A senior banker who attended the meeting said, "We will be reviewing our rates and reworking marginal cost-based lending rate (MCLR). Trading in the bond market has also been positive during the quarter, which will help our margins. The Union Cabinet approved changes in the Insolvency and Bankruptcy Code will also help us in faster resolutions and money flowing back."

While State Bank of India's rate cuts would kick in from July 10, 2019, banks across the board have reduced rates only by a maximum of 0.25%. The other banks that cut their interest rates in July are HDFC Bank, Kotak Mahindra Bank, IndusInd Bank, and ICICI Bank, which reduced its lending rates across tenures.

Another banker said, "We will also review our rates shortly and pass on whatever benefits that the bank can without hurting our profits."

Many banks, especially smaller ones like the Union Bank of India, Central Bank of India, and Kolkata-based UCO Bank, are yet to bring down their rates. Allahabad Bank, UCO Bank, Central Bank of India are yet to come out of the Prompt Corrective Action, a special RBI-designated monitoring mechanism that puts lending restrictions on them until their non-performing assets are kept under check.