ICICI, HDFC Bank follow SBI; revise FD rates by up to 0.5 pc

Mumbai, September 12: Private sector banks like ICICI Bank and HDFC Bank on Wednesday reduced interest rates on fixed deposits by atleast 50 basis point. The reduction in deposit rates comes at a time when the economy is slowing down and credit pick up is slack. One basis point is equal to one hundredth of a percentage. Last week, State Bank of India had reduced interest rate on deposits by as much as 100 basis points across maturities to maintain profitability after lowering lending rates.

 

ICICI Bank has cut rates across maturities ranging from 91 days to less than five years. It now offers a maximum 8.75 per cent interest on retail term deposits compared to 9.25 per cent earlier. In the shorter tenure ranging between seven days to 45 days, however, the bank has increased rate by 50-75 basis points. A reduction in statutory reserve ratio, the amount of funds to be held in government bonds, by a percentage point is also help the banks lend Rs 15,000 crore more to corporate or retail customers. Deposits grew 14.1% year on year against RBI's projection of 16%.

 

Pratip Chaudari, chairman State Bank of India had said, “As of now, we are surplus in deposit for SBI. The challenge is more on pushing credit.” Also, the cut in SLR is providing some comfort. This is helping banks in meeting the credit demand, which is climbing marginally. Recent RBI data shows that credit has grown 16.7% year on year.

 

‘We could see the private players now reduce lending rates to get competitive as many public sector banks like State Bank of India and Andhra Bank have cut rates on select retail products,’ said a banking analyst with a domestic brokerage. ICICI Bank is also doing this to maintain a healthy margin of over 3%, he added.

Chakrabarty had same views on CRR as a banker: SBI chief

Mumbai, August 28: State Bank of India Chairman Pratip Chaudhuri on Tuesday took a gentle dig at the Reserve Bank of India Deputy Governor K C Chakrabarty, who had advised him yesterday to “find out some other place” if he didn’t agree with the current regulatory environment insofar as cash reserve ratio was concerned.
Speaking on the sidelines of an investor conference on Tuesday, Chaudhuri said he hadn’t read the complete media reports, but what he remembered was that Chakrabarty had the same views when he was a banker.
“What I want to say is that it’s just a view. When he (Chakrabarty) was a bank chairman, he was also of the same view (reducing the CRR),” Chaudhuri said. He made the remarks with a big smile, but the message was loud and clear.
Before joining the central bank, Chakrabarty was the chairman and managing director of Punjab National Bank and before that, of Indian Bank.
However, while speaking to NewsWire 18, Chaudhuri clarified his intention was not a complete abolition of cash reserve ratio (CRR) overnight, but to ignite a public debate on the merits of CRR. “My comments are in sync with the views of most of the bankers today,” he said.
Chaudhuri had earlier suggested that CRR should be phased out in a time bound manner or at least RBI should consider a paying an interest on it equivalent to the savings bank account rate if not the repo or the reverse repo rate.
CRR is the proportion of deposits that banks need to park with the regulator. While RBI used to pay interest on CRR funds, but that system was withdrawn a few years back. As a result, banks do not earn anything for keeping CRR with RBI but the negative carry for CRR and also SLR (statutory liquidity ratio) is considered while calculating the benchmark lending rate — the Base rate.
At present, CRR is 4.75 per cent. The central bank had reduced CRR by 125 bps to improve liquidity situation during January-February. CRR is not only used a liquidity tool but also indicates the monetary policy stance of the central bank.

Capital infusion
Regarding fund raising, Chaudhuri said SBI was in talks with the government for capital infusion and he expected the government to infuse about Rs 4,000 crore this financial year in the bank.
The government is committed to infuse capital in the PSBs and retain its stake, financial services secretary D K Mittal had told reporters on a sidelines of an event last year in Mumbai. However the Rs 8,000 crore capital infusion for SBI came only at the end of the last financial year after from the government after dilly-dallying on the issue for the whole year.
Capital adequacy ratio for the SBI at the end of the first quarter stood at 13.17 per cent.
On associate banks’ merger, Chaudhuri said that it was currently not on the priority list of the bank and he could not say if any associate bank would be merged this financial year. The SBI board has already cleared the merger of one associate bank this year.

There is room for rate reduction: SBI chief

Citing State Bank of India’s example, finance minister P Chidambaram on Saturday prodded other banks to reduce EMIs to boost demand. The daily loan sanctions of the country’s largest lender have increased from 400 cars to 1,200 after EMIs were reduced from Rs 1,766 a lakh a month to Rs 1,699 a lakh a month.
Taking a cue from the minister, SBI chairman Pratip C Chaudhuri told TOI in an interview that there is scope for a further reduction in rates but the bank will be selective. Instead of an across-the-board reduction, SBI will look at sectors where lower EMIs would help push demand. Excerpts:
The FM used SBI’s example to ask other banks to reduce EMIs…
Our decision on consumer durables is the result of what the Reserve Bank has done. We decided that we will share the benefit of whatever excess SLR we are sitting on. Today, if you look at the loan demand from the corporate sector, there are very few projects that are taking off and investment is also low in power, steel or cement. As far as working capital is concerned, people are borrowing below the base rate, and they are borrowing through commercial paper. So, you can’t just push loans in this space. So, we have decided to focus on the retail side and try to push whatever demand is possible.

But why not home loans too?
In case of auto loans, the response is quicker. You sanction a loan today and the person purchases a car in two days. In case of home loans, it takes a while — if I sanction a loan today it will take a few months, if not more, for the entire amount to be disbursed.
Is there further room to reduce rates, even if it’s on the retail side?
Yes, there is room for reduction. We will reduce rates wherever there is the possibility of increasing demand. You look at the retail outlets, there is an immediate increase in demand whenever there is a discount. That’s been our experience too. We cut interest rates for SMEs and now we have done it for cars, where the demand has increased. The only way to improve sentiment is to get people to buy and get people to invest.
The FM also said that he will try to resolve problems related to environmental clearances and land acquisition. What else needs to be done?
Public sector companies and some core sector players are sitting on cash, which needs to be deployed. For instance, the railways can be asked to invest in adding new lines and capacity. Similarly, NTPC and other PSUs need to accelerate capacity addition so that others also join later.
But there are sectors such as roads where companies are unable to take up new projects as they cannot raise fresh equity…
The problem is not due to their ability to raise equity. Agencies such as NHAI, state PWD and state electricity boards are delaying payments. NHAI is invoking guarantees which is making it difficult for companies and creating uncertainty. We have flagged this issue too.
Will lending also get a boost once some of the sectoral issues such as those in power, textiles, and telecom are sorted out?
We do not have much exposure to discoms. But the fact is that they cannot run up losses and delay payments. It will certainly help if the problems are resolved. In other sectors, such as textiles, companies have suffered due to exchange rate-related problems and some of them were over leveraged. In case of telecom, there is no problem with companies that had got licences prior to 2007. They are very strong, enjoy good ratings and have the ability to put more capital. Now that spectrum can be used as a collateral, we will be in a better position to lend.
What about your own problems with NPAs? How much was it due to loan restructurings in 2008?
The worst is over and in the next two quarters, things will look better. Some of it is due to 2008. The outlook then was so buoyant that people lined up huge capital expansion and some of the demand did not materialize.
Is there any progress on capital infusion given that there are suggestions that the government may delay it due to tight fiscal position?
We will get it soon. Last year too, we received capital and the government is keen to demonstrate that it is behind banks and expanding the economy. Our internal generation is quite good and we have taken steps to use capital more efficiently. So, there is no rush at the moment.

Finance ministry wants RBI to pay 7% interest on CRR deposits

New Delhi, August 12: The finance ministry has suggested that the Reserve Bank of India pay 7% interest on the mandatory deposits parked with it by banks, one among several measures proposed to lower rates even if the central bank does not ease the monetary policy. Finance minister P Chidambaram will take a call on the proposal, which would eventually go to the RBI.

“This is one among the many measures we have suggested to bring interest costs down,” a senior finance ministry official told ET on condition of anonymity. Chidambaram had last week indicated that the government was aware of the high interest rates and said “carefully calibrated risks” could be taken to stimulate investment, suggesting some innovation from the government to lower rates.

Banks have to mandatorily park a percentage of their deposits, called the cash reserve ratio, or CRR, with the RBI. The central bank had stopped paying interest to banks on CRR in 2007. Finance ministry officials are of the view that if the RBI were to pay interest at the reverse repo rate, or the rate at which banks park their surpluses with it, then banks will be able to lower their deposit rates, and eventually, lending rates will fall. At present, the CRR rate is 4.75%.

If the RBI were to agree to the proposal, banks will earn 7%, the reverse repo rate, on this portion of funds, helping them lower the cost of funds that can be passed on to borrowers. The RBI had not cut rates in its June 18 policy review because of the high inflation and lack of fiscal consolidation from the government. An RBI official said the move may not bring down interest rates, as effective cuts in policy rates have not yet been transmitted by banks to borrowers.

“We have not seen any real transmission in spite of a 100 basis points SLR (statutory liquidity ratio) cut in July, 75bps CRR cut in March and 50 bps rate cut in April,” the official said. “So how will this (paying interest on CRR) help is still a mystery to us.”

RBI wants banks to cut base rates, not select lending rates

Mumbai, August 6: With banks led by the country’s largest lender State Bank of India (SBI) choosing to cut spreads on certain categories of loans instead of the base rate, deputy governor Anand Sinha today said the Reserve Bank would like the banks to cut the minimum lending rate to better carry forward its monetary policy measures.

“The base rate is supposed to be responsive to the changes in monetary conditions Reserve Bank would definitely want the responses to be through the base rate,” Sinha said at an IDBI Bank event here. Sinha further said an RBI committee on interest rates, headed by him, is looking into these aspects.

The committee, supposed to come out with report last month, has made progress and will be submitting it soon. Replying to a question, Sinha said banks are unable to cut their base rates as per the monetary policy changes, because they carry the burden of fixed rate deposits and fixed costs to service that over a longer-time.

“Banks are not able to respond quickly to the changes in monetary conditions or monetary policy signals because they carry a fixed cost over an extended period of time,” he said, flagging this as a subject of discussion with bankers during deliberations on floating deposit rates.

On asked if the RBI which has been discussing floating rate deposits but also stressing fixed rate loans is concerned over potential asset liability mismatches, Sinha replied in the affirmative. “Asset liability concern, in the long-term, yes,” he said, adding that so far banks have been successful in managing the longer gestation infrastructure projects.

Though, since January, the RBI has cut repo rate by 50 bps and CRR by 125 bps, and a 100 bps SLR cut last week, the effect of the same has not been passed on to the customers by banks by lowering interest rates as a whole. Instead, banks have been cherry-picking interest rates reduction, and have not lowered their base rates, which would automatically lead to a similar reduction in interest rates for both existing as well as the new customers.

Some banks like State Bank and Union Bank of India, among others, have slashed interest rate on certain loan products like home loans and lending to SMEs, but have not cut the base rate, or the minimum rate of lending.

Rate cut could be good news this festive season

New Delhi, August 6: RBI's decision to slash the SLR rate by 100 basis points has pleasantly surprised many. Banks had witnessed tight liquidity position in last few months, but the current move by RBI would ease the pressure, to some extent. The effect of RBI's step has been taken immediately by the State Bank of India (SBI) on a positive note as it has announced a cut in the home loan and car loan interest rates with effect from August 7, 2012. Home loan interest has been cut to 10.25 per cent from existing 10.5 per cent for the loan amounts below R 30 lakh, whereas the loan amount between R 30 lakh to R 75 lakh will now attract an interest rate at the rate of 10.4 per cent.

 

The maximum cut of 85 basis points has been announced on the loan amount above R 75 lakh. Auto loan interest rate has been reduced to 10.75 per cent from the previous rate of 11.25 per cent. The banking sector is expected to follow the trend with increased liquidity in the days to come. The base rate is standing unchanged at 10 percent at the moment, so existing bank borrowers would not get the benefit of any rate reduction.

 

In the term-deposit front, SBI has announced a cut in the term deposit rate for five years (up to ten years) by 25 basis points to 8.5 per cent with effect from August 7, 2012. Contrary to the move of the largest bank, the second-largest bank of India i.e. Punjab National Bank (PNB) has announced an increase in term deposit rate from 8.75 percent to 9 percent for a one-year tenure single deposit of Rs one crore or fewer amounts. It has also increased the NRE deposit rate to 9 percent. The PNB's change would be effective from August 2.

 

Good news this festive season

 

The current reduction in the loan rates is expected to change the momentum of loan trends in the banking sector. With the reduction in housing loan interest rates, banks that reduce the interest rate in current market would position itself as an affordable loan provider amongst other banks.

 

Similarly, in the car loan segment, banks would compete to attract customers with offers and discounts in interest rates.

 

With the festive season round the corner, most banks are likely to slash interest rates. Also there is bound to be increased consumer interest in the purchase of home, cars and consumer durables during the festive season, increasing the probability of a downward loan trend. Expenditure tends to rise this season and banks would ideally like to be in a position to offer the interested borrower the best deal. From the point of view of customers, any further rate cut by banks would be a welcome move, and they will find the prospect of a lowered interest rate burden on car and housing loan very attractive now.

 

The rate cut could well be one of the strategies for banks to take up market share in the retail loan segment. Since RBI has restricted banks from charging penalty on prepayment of loans or levying foreclosure charges on floating-rate home loans, banks that slash the rate would benefit in context of clients shifting from other banks, which are still waiting to reduce the rate. If other banks don't follow the trend by cutting the rate, then they are likely to lose a few customers in the days to come.

 

Being the festive season, the banks are not only expected to cut the interest rates but also offer discounts in other charges to attract the customer and find a space between car and home buyers. It looks like SBI has just pushed the alarm button for other banks to wake up to a changing trend. So the current scenario looks all set for more smiles on the faces of customers in the days to come.

Trying to increase coverage in retail space: Pratip Chaudhuri

Mumbai, August 2: In an interview with ET Now, Pratip Chaudhuri, Chairman of State Bank of India, gives his views on the RBI monetary policy and rate cuts. Excerpts:

 

ET Now: Firstly, how much of a benefit will SBI get from the cut in SLR announced by the RBI in this policy?

 

Pratip Chaudhuri: We thank the RBI. The policy had become two-dimensional. People used to only talk about the repo rate and a possible CRR cut. But the RBI added a third dimension of injecting liquidity beyond these two instruments, i.e. repo rate and CRR cut. Last time they increased the refinance component on export credit from 15% to 50%. This has given us an additional Rs 5000 crore.

 

The SLR cut has released about Rs 10000 crore for SBI. So what it means to my mind is that Rs 10000 crore which was locked up in low-yield SLR security, we would have greater urgency to deploy that in productive sectors.

 

ET Now: How much is your present SLR holding and would you look at taking benefit of the SLR reduction limit which was announced by the Reserve Bank of India on Tuesday?

 

Pratip Chaudhuri: Our SLR holding is currently about 28%. With this 1% reduction, it would become about 4% surplus. So you can either sell, depending on where that particular scrip is trading. Even if you don't sell, you can always put it into LAF and get liquidity. So roughly we have Rs 40000 crore of extra liquidity.

 

ET Now: Is the cut in your base rates as well in the pipeline then?

 

Pratip Chaudhuri: Not a broad-base rate cut. Only car loan and home loans are being targeted because we think that the instrument of interest rate should be used for increasing the credit flow.

 

So we think that the impact of cutting interest rates would be highest in these 2 segments -- home and car loans. No matter what is the interest rate for the corporate sector, there is hardly any demand for term loans. Working capital loans are also not in high demand because currently the commercial papers are going at about 9.3 to 9.7, which is below the base rates of all banks. So we are trying to increase our coverage in the retail space.

SBI reduces interest rate for deposits over 5 years from Aug 7

Mumbai, August 2: State Bank of India (SBI) on Thursday reduced interest rates for deposits with a term of more than five years to 8.5%, effective August 7. The bank currently offers 8.75% for deposits of up to Rs. 1 crore and 9% for deposits above Rs. 1 crore in this basket. “This is purely an asset-liability mismatch decision,” said SBI Deputy Managing Director and Chief Credit Risk Officer Atanu Sen. “Honestly speaking, we found that the portion of depositors in this basket is quite small. We have not touched other maturity baskets.”

 

SBI’s selective deposit rate cut comes a day after the country’s largest lender reduced its home and auto loan rates, citing extra liquidity support through the Reserve Bank of India’s decision to pare banks’ mandatory bond holding limit to 23% of total deposits from 24% earlier. The bond holding limit is called the Statutory Liquidity Ratio (SLR). SBI said the SLR cut gives it additional liquidity of about Rs. 10,000 crore and the management had decided to pass this on to customers and expand the balance sheet.

 

SBI reduced home loan rates from 10.75% to 10.25% for loans up to Rs. 30 lakh while loans above that will be offered at 10.40%. Auto loan rates were reduced from 11.25% to 10.75%.

 

While the reduced rates are for new customers, existing borrowers can switch to them by paying 1% of the outstanding loan amount to the bank as fees. It said this was not an early payment penalty. “Cost is a factor of time,” said P. Pradeep Kumar, deputy managing director and group executive for global markets at the bank. “We are offering the new rates now based on the existing cost. Even then, our rates are the most competitive in the industry.”

 

PTI reports: The bank said that sluggish growth in the property market prompted it to cut its annual home loan growth target. The bank, which cut its home loan rates on Wednesday, was earlier targeting a 25 per cent growth in its home loan book. Such loans are expected to grow by only 15-20 per cent, the bank said. “There has been a drop in home registrations and we want to be realistic and now expect that the home loan segment will grow by only 15-20 per cent,” Mr. Atanu Sen, Deputy Managing Director said, while addressing a press conference.

SBI cuts interest rates on Home & Car loans from August 7

Mumbai, August 1: The country's largest lender State Bank of India will cut rates on its home and auto loans. The move comes close on the heels of the Reserve Bank of India cutting the statutory liquidity ratio for banks in its policy statement on Tuesday.

 

SBI will cut rates on home loans by 25 bps and on auto loans by 50 bps, the bank's chairman Pratip Chaudhuri told ET NOW in an exclusive interview. The new rates will be effective from August 7. The bank, however, is not in a position to cut its base rate at present.

 

"We need to use interest rates as an instrument to increase credit flow. We are targeting home and auto loans because the pass through in both these segments will be the fastest," Mr Chaudhuri said. SBI's asset liability committee met on Wednesday evening to take a call on interest rates following the RBI's policy.

 

According to Mr Chaudhuri, "there is very weak corporate demand and it won't make business sense to cut rates for corporates at this juncture." However, he added that a pick-up in demand from corporates may lead to the bank looking at reducing rates for corporates.

 

SBI has in the recent past cut rates on its SME and auto loan portfolios but this is the first home loan rate cut by the bank in a few quarters.

 

Though the bank hasn't taken any call on deposit rates yet, Mr Chaudhuri mentioned that SBI is seeing a surfeit of deposits at a time when the rest of the banking industry is starved of deposits. The bank will declare its Q1 earnings on August 10.

 

PTI Reports:  New Delhi, August 1: State Bank of India today slashed lending rates on car and home loans by up to 0.5 per cent, a day after one per cent cut in SLR by the Reserve Bank. SBI has reduced interest rate on home loans of up to Rs 30 lakh to 10.25 per cent from existing 10.50 per cent (after 0.25 per cent concession over the card rate), a senior bank official said.

 

On the home loans of beyond Rs 30 lakh but less than Rs 75 lakh, the new rate will be 10.40 per cent against the existing 10.75 per cent, down 0.35 per cent.

 

The new rates will be effective from August 7, the official added. The base rate or minimum lending rate of SBI stands at 10 per cent. Base rate is the benchmark rate below which a bank cannot lend.

 

With regard to the car loan, the reduction is to the extent of 0.5 per cent. The new car loan would be 10.75 per cent against the existing rate of 11.25 per cent for a seven-year loan. Now for every Rs 1 lakh, a customer has to pay Rs 1,699 EMI against Rs 1,725 per month earlier. SBI claimed this as the lowest EMI. With the reduction, a borrower would end up saving Rs 312 per year on every one lakh.

 

Yesterday, RBI in its quarterly monetary policy review reduced Statutory Liquidity Ratio (SLR), the amount of deposits that have to be invested in government bonds and other liquid assets, by 1 per cent. RBI Governor D Subbarao cut the SLR to 23 per cent, thereby releasing around Rs 68,000 crore of additional liquidity into the system, even as he left all the key interest rates unchanged in the anti-inflationary stance.

SLR cut may help slash lending rates: Bankers

Mumbai, July 31 The Reserve Bank of India has done a balancing act amid weak economic conditions by increasing liquidity that can help bankers cut lending rates, and at the same time let it continue with its nearly three-year-old fight against inflation, top lenders said Tuesday.

They hinted at a marginal reduction in lending rates following today’s cut in the statutory liquidity ratio (SLR) — the amount of deposits that have to be invested in government bonds and other liquid assets. The central bank reduced the SLR by 1% at the quarterly monetary policy review on Tuesday morning.

India’s largest lender, State Bank of India, hinted at lowering lending rates to retail customers. “The one percentage point cut in SLR will release an additional Rs 10,000 crore for SBI. That coupled with Rs 6,500 crore released through the reduction in export refinance, may lead the bank to cut lending rates in retail,” SBI chairman Pratip...