HDFC Bank cuts base rate to 9.30%
The new rate offered will match State Bank of India, which had the lowest base rate in the market. HDFC Bank had earlier cut rates in August to 9.35%.
Second largest private sector lender HDFC Bank slashed its base rate by 5 basis points to 9.30% from 9.35% earlier.
The new rate offered will match State Bank of India, which had the lowest base rate in the market. HDFC Bank had earlier cut rates in August to 9.35%. ICICI Bank, the largest private sector bank, which has its base rate at 9.35%, may also bring down its base rate to stay in line with competition.
Ashish Parthasarathy, head treasurer, HDFC Bank told dna, “Lending rates are unlikely to come down significantly. We took a call taking into consideration our cost of funds and other factors. The cut is unlikely to impact our net interest margins (NIMs) which have remained stable over most interest rate cycles.
HDFC Bank, however, does not give home loans. It originates the requests and sells them down to its parent.
After the Reserve Bank of India slashed the repo rate or rate at which it lends to the banks by 0.50% in September, most of the banks followed suit and reduced their base rate by 0.25% to 0.40%. Home loans and car loans were priced slightly higher than the base rate with the lowest rate being 9.50% for women customers and 9.55% for general customers.
Bank credit has been sluggish with demand for working capital loans. But, bank loans rose 11% in the two weeks to December 11 from a year earlier, while deposits rose 11.5%, as per RBI’s weekly statistical supplement.
RBI lowered rates by 1.25% in the calendar year 2015 but banks have only passed on half the cuts by lowering rates only by 0.60% to 0.75%. Banks now have to shift to the marginal cost lending rate (MCLR) from April 2016, which is expected to bring a faster transmission of monetary policy. The new regime is expected to make the loans cheaper by 0.60 to 1.8% on an average as banks will have different interest depending on the tenure of the loan.
Moody’s, in a report illustrated: If a bank intends to fund a five-year loan based on its one-year deposits base by pricing it off the one-year MCLR, there will be lower mismatch between yields and the cost of the bank’s intended funding base if policy rates were to change.
With the US Federal Reserve hike behind us and further hikes to be gradual and data dependent, there is an assurance that interest rates will not climb sharply across the globe. In India, though it is dependent on inflation, banks are often left with little choice but to bring down rates to encourage a credit growth.