Tuesday, December 9, 2008

Banks not in a hurry to cut rates

A likely cut in lending rates by banks may fall short of borrowers’ expectations. While some banks may do a token rate cut this week, and lower the rates for small-ticket home loans (up to 20 lakh!), many banks will take a call on bringing down rates across the board after the advance tax outflow, which takes out the liquidity from the system.

Most banks are expected to bring down interest rates by end-December. Rates on home, auto and consumer loans may come down less than the one percentage point cut in key policy rates announced by RBI on Saturday.

Till now, only ICICI Bank has announced a cut for a category of home loans. While the interest rate has been lowered by as much as 1.5 percentage point, the lower rate is only for new borrowers taking loans up to Rs 20 lakh. Most banks are not in a hurry to lower lending rates for retail customers considering that delinquencies on retail, SME and corporate loans are rising.

The unwillingness of some of the private and foreign banks to rush through a rate cut may be partly attributed to the fact that they had not passed on the steep rise in borrowing costs in the past several months. HDFC will take a final view in the coming weeks. HDFC vice-chairman and MD Keki Mistry said, “The repo rate cut and reduction in deposit rates will reduce the cost of funds. Once they come down, we will pass on the benefit to borrowers.” To read more, please, visit -The Economic Times

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