As per the bank's point of view, the change in base rates will not have any impact on the margins.
On Tuesday, Reserve Bank of India decided to keep the repo rate and CRR unchanged at 7.5% and 4% respectively. Later during the day, Dr. Raghuram Rajan had a few tough words for the public and private lenders, who did not lower their rate, despite RBI's surprise rate cut on March 4 ‘15. He said, "The notion that banks' cost of funds hasn't fallen is "nonsense", Dr Rajan said at a press conference, coming down heavily on lenders for not passing the benefits of lower interest rates to consumers.
His words had a spiral effect on most of the banks. After the RBI's announcement, SBI cut its base rate by 15 basis points to 9.85% from 10% which will be effective from 10th April 2015. Following the SBI's steps, HDFC Bank also lowered its base rate by 15 bps to 9.85%. The cut in interest rates is expected to bring some relief to corporate and retail borrowers including for home and auto loans.
In an interview with CNBC TV18, Paresh Suthankar, Executive Director, HDFC Bank, said regarding the rate cut, "There are two elements which sort of enabled this. One, you first needed to get deposit rates to come off and that in turn would enable the dropping of the base rate. Second, we have always been on a marginal deposit rate calculation for the base rate. So, having dropped key deposit rate from 8.75 percent to 8.5 percent for one-year deposits and then recalibrating the base rate, we found that there was room to reduce the base rate".
As per the bank's point of view, the change in base rates will not have any impact on the margins. They tend to maintain the current levels of net interest margins.
Presently, the bank is not looking at further deposit rates cut. It has been reported though, that its competitor bank, SBI is planning to cut one-year deposit rate by 25 basis points in the next six to nine months.
Talking about the outlook towards credit growth, he said, "In terms of credit growth, we have traditionally remained comfortable with looking to grow a little faster than the system and I think we remain positioned for that. I don’t think the marginal change which we have seen in rates itself is going to be a huge figure to change the credit growth number. However, despite the somewhat muted system growth I think we remain positioned to grow little faster than that which is what we have traditionally done".
The range of rates in small savings banks like Indira Vikas Patra, Kisan Vikas Patra (KVP), Public Provident Fund (PPF) are all at 8.75. When asked Suthankar, does that deter for the fallen deposits, he said, "By and large one could argue that there is some impact. The reality is that a larger portion of bank deposits as you are aware tend to be of shorter tenures than most of these instruments. So it is a fact that at the longer end clearly the retail depositor will be enticed with a slightly higher returns that they get on the instruments mentioned but clearly the liquidity, the fact that a lot of retail depositors do look for shorter tenures means that there will be a section of depositors who would be happy to place deposits quarter percent less but with the flexibility which comes with bank deposits".
His words had a spiral effect on most of the banks. After the RBI's announcement, SBI cut its base rate by 15 basis points to 9.85% from 10% which will be effective from 10th April 2015. Following the SBI's steps, HDFC Bank also lowered its base rate by 15 bps to 9.85%. The cut in interest rates is expected to bring some relief to corporate and retail borrowers including for home and auto loans.
In an interview with CNBC TV18, Paresh Suthankar, Executive Director, HDFC Bank, said regarding the rate cut, "There are two elements which sort of enabled this. One, you first needed to get deposit rates to come off and that in turn would enable the dropping of the base rate. Second, we have always been on a marginal deposit rate calculation for the base rate. So, having dropped key deposit rate from 8.75 percent to 8.5 percent for one-year deposits and then recalibrating the base rate, we found that there was room to reduce the base rate".
As per the bank's point of view, the change in base rates will not have any impact on the margins. They tend to maintain the current levels of net interest margins.
Presently, the bank is not looking at further deposit rates cut. It has been reported though, that its competitor bank, SBI is planning to cut one-year deposit rate by 25 basis points in the next six to nine months.
Talking about the outlook towards credit growth, he said, "In terms of credit growth, we have traditionally remained comfortable with looking to grow a little faster than the system and I think we remain positioned for that. I don’t think the marginal change which we have seen in rates itself is going to be a huge figure to change the credit growth number. However, despite the somewhat muted system growth I think we remain positioned to grow little faster than that which is what we have traditionally done".
The range of rates in small savings banks like Indira Vikas Patra, Kisan Vikas Patra (KVP), Public Provident Fund (PPF) are all at 8.75. When asked Suthankar, does that deter for the fallen deposits, he said, "By and large one could argue that there is some impact. The reality is that a larger portion of bank deposits as you are aware tend to be of shorter tenures than most of these instruments. So it is a fact that at the longer end clearly the retail depositor will be enticed with a slightly higher returns that they get on the instruments mentioned but clearly the liquidity, the fact that a lot of retail depositors do look for shorter tenures means that there will be a section of depositors who would be happy to place deposits quarter percent less but with the flexibility which comes with bank deposits".
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