Bankers Hint at Lowering Rates After Raghuram Rajan's Push

Mumbai: Feeling the Reserve Bank of India's heat for not passing on benefits of rate cuts fully to borrowers, bankers promised that borrowers can look forward to lower rates even as Raghuram Rajan, the Governor of the central bank, decided to keep rates on hold on Tuesday.

"As the impact of monetary policy measures taken so far plays out in terms of bank funding costs, lending rates are expected to continue to moderate," Chanda Kochhar, MD and chief executive of ICICI Bank, said in a statement.

Bandhan Bank CMD Chandra Shekhar Ghosh too hinted at easing of rates.

"Things will change. Once small savings rates are pared, banks will be in a position to cut their deposit rates and bring down the cost of money," he said.

Bankers agreed that the policy move was on expected lines, with some calling Mr Rajan's commentary as "dovish".

Earlier in the day after keeping the key rates unaltered, the RBI Governor made his displeasure known for banks not doing enough on transmission, saying they have passed less than half of the cumulative 1.25 per cent repo rate cut by the RBI in 2015.

He had added that the quantum of deposit rate cuts in the 1-3 year category is more than lending rate cuts, which points to more room being available for lending rate reductions.

To push the banks to act fast, Mr Rajan said the RBI will be coming out with guidelines on marginal cost of funding-based formula to compute base rates.

"The guidelines on the base rate calculation based on marginal cost of funds will be watched and appropriate actions will be taken on the same," Arundhati Bhattacharya, chairperson of State Bank of India, said in a statement.

Bank of India MD and chief executive Melwyn Rego was on the same page, who added that the new base rate methodology, coupled with changes to small savings rates, can help push down rates.

"This (new formula), along with the proposal to link small savings interest rates to market rates, is expected to facilitate better transmission of monetary policy," he said in a statement.

HDFC Bank's chief economist Abheek Barua said the RBI is likely to continue with a wait-and-watch approach until it understands the government's plans to accommodate the Seventh Pay Commission's recommendations and provide a credible fiscal consolidation path in which it does not cut back its capital expenditure plans.

Kotak Mahindra Bank president K V S Manian said he expects the RBI to further ease rates through 2016-17.