Sources familiar with the developments said the finance secretary is likely to discuss the need for systemic support to sectors that have been affected the most due to tight liquidity conditions. "There is a need for a collective effort. Only PSU banks should not be asked to shoulder the responsibility as the benefits of the reduction in CRR, SLR and repo rate are enjoyed by all banks," they said.
Most private banks declined to comment on interest rates, but agreed a downward revision in lending and deposit rates is now inevitable. ICICI Bank's MD and CEO, K V Kamath, said yesterday that the bank would watch the impact of the liquidity measures taken by the central bank, and review interest rates in the next few days. This move may be speeded up with Tuesday's decision by all PSU banks to cut lending rates rates by up to 75 basis points and deposit rates by 50 basis points. The decision was taken after a meeting between Finance Minister P Chidambaram and PSU bank heads.
Sources indicated that the country's third largest private sector lender, Axis Bank, would revise its lending rates in the next two to three weeks. "The bank would initially cut its lending rates by 50-75 bps. However, the decision will take some time as lending rates are based on the funding composition of the bank, and decisions on revising rates cannot be taken immediately, the sources said.
Karnataka Bank Chairman Ananthakrishna said the reduction in the CRR by 350 basis points to 5.5 per cent has improved liquidity for the bank. "Now about Rs 600 crore (Rs 6 billion) will be available for deployment for yields. But, this is not sufficient factor to reduce lending rate. However, the Assets and liability committee (ALCO) will meet in a week's time to take a call on interest rates," he added.
In an attempt to ease the liquidity condition, the central bank had on Saturday reduced the CRR by 100 bps to 5.5 per cent, and the repo rate by 50 bps to 7.5 per cent.
Immediately after the announcement, a senior executive at HDFC Bank had said lending rates will go down. The bank on Tuesday said that it continues to keep an eye on developments, and will take appropriate action at the appropriate time.
HDFC Chairman Deepak Parekh told a news channel that a decision on rates would be taken after the meeting with the finance secretary.
Some private sector lenders like Yes Bank might take a little longer to trim their lending rates. "There is so much of demand for credit right now that we may not need to reduce our rates immediately. We will wait and watch. But, we do expect a reduction of lending rates by about 1.5 per cent over the next six months," said Rajat Monga, CFO, Yes Bank.