Image Source : PTI/FILE PHOTO RBI Governor Sanjay Malhotra at the RBI headquarters
The Reserve Bank of India (RBI) cut the policy repo rate by 25 basis points last week and set it to 6.25 per cent from its current level of 6.5 per cent. People are now eagerly waiting to see how the banks will react with changes in lending and deposit rates.
State Bank of India Chairman CS Setty has confirmed that the bank will revise its lending rates linked to the external benchmark lending rate or EBLR this month itself. Speaking to Business Standard, Setty said, “We will have an ALCO (asset-liability committee) meeting this week, and from this month itself, the new rates will be effective.”
Will banks cut deposit rates soon?
Setty also said that probably most banks are not going to reduce deposit rates at this juncture. Credit demand in the current quarter remains strong, he said.
“They may wait for this quarter to be over. This is a busy period with good credit growth, and banks need deposits to support lending. A few banks may make a move, but most will likely wait until the next quarter before deciding on deposit rate cuts,” he said.
RBI’s rate cut and its impact
February 7 Sanjay Malhotra, the new RBI Governor, indicated a repo rate cut, and it kept the Standing Deposit Facility (SDF), the Marginal Standing Facility (MSF), and bank rates standing at 6.5 per cent.
Deputy RBI Governor M Rajeshwar Rao said the deposit rates will take at least two quarters to reflect the rate adjustments. RBI Governor Malhotra also clarified that in the NCLR system, the change in deposit rate will be a gradual process. Long-term fixed deposits of five years or more will not experience an immediate revision.
As banks evaluate liquidity and credit growth, severe cuts in deposit rates would probably also be very much dependent upon the economic conditions during the next quarter.
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