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Some relief — cut in interest rates soon
Bhagyashree Pande
Tribune News Service

New Delhi, November 4
The common man reeling under high prices and high interest rates may be in for a relief in coming days. Populist measure to win votes is coming and this means easing the noose of high interest rates.

There could be slashing of interest rates for home loans, personal loans and auto loans in coming days and an end of high interest rate regime. Indicating that there could be relief from high interest rates, country’s largest lender the State Bank of India (SBI) has said it would reduce its benchmark lending rate by at least 50 basis points in a day or two. Lowering the rates that have touched nearly 13-14 per cent by 0.5 per cent to 12.5 per cent levels.

The banks asset and liability committee, which is meeting tomorrow, will take a decision on the cut of prime lending rate (PLR) by at least 50 basis points, SBI chairman O.P. Bhatt said, adding that it would take the decision soon and the announcement would be made in a day or two. If the rates are cut then they would be applicable as soon as next week, a relief in sight when the inflationary pressure is also beginning to ease.

However, this could be bad news for savers and people dependent on interest income from fixed deposits as interest rate cut will also mean a slashing of deposit rates on fixed deposits and saving bank rates in coming weeks.

Already the rate cut spree was initiated by the second largest bank Punjab National Bank that reduced the benchmark PLR by 50 basis points to 13.5 per cent last week.

The Reserve Bank of India (RBI) has infused a lot of liquidity into the system by reducing the cash reserve ratio by 350 basis points, the statutory liquidity ratio by 100 basis points and the repo rate by 150 basis points, Bhatt said.

Surplus liquidity in the system has resulted in cost of funds going down, so it is the right time to pass on the benefits to customers, he added.

The RBI, since October, has reduced the cash reserve ratio (percentage of deposits that banks keep with the central bank) from 9 per cent to 5.5 per cent and the short-term lending (repo) rate, at which banks borrow from the RBI, from 9 per cent to 7.5 per cent.

The finance minister today had chaired meeting to review the liquidity situation in public sector banks.

Sources in banking circles have a different version and say there is still not enough liquidity in the cash strap system and there is not much relief despite the fact that the RBI has been inducing liquidity in the system.

Corporate are suffering because share prices have gone down and demand for corporate bond has sunk, foreign investors have withdrawn funds, private equity commitments are being put on hold and there are not enough funds to borrow and those that are available are at a very high cost add banking sources, hence more liquidity is needed, just slashing interest rates will not help it is a crisis of confidence.

Other bankers who were also present to attend a meeting with the finance minister said they would follow suit if the SBI cuts interest rates.

Bank of India chairman T.S Narayanasami indicated that his bank would soon take a call on revising interest rates.

Indicating that there was a pressure on the banks to cut rates Narayanswami said all banks were expected to cut interest rates. “We have to fall in line, and review interest rates soon and it’s a matter of time,” he added.

Private sector major ICICI Bank also indicated that it would slash rates in coming days. ICICI managing director and CEO K.V Kamath had already indicated after a meeting with the Prime Minister that the bank would pare down the rates in the coming days.



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