Banks gear up for rate-cut season

Protecting Margins

- MAHESH NAYAK

THE COUNTRY'S LARGEST bank and non-banking financial company — State Bank of India and Bajaj Finance, respectively, have already given the signal that the rate-cut cycle has begun. With SBI cutting rates by 20 basis points (bps) across tenures on Friday, it has now cut rates by 45 bps in the span of one month. Bajaj Finance reduced rates on Monday by 50 bps across some tenures.

"This is the direct outcome of RBI's April policy stance of being accommodative from neutral. The focus of the RBI is on economic growth and it wants credit offtake to surge," said the CEO of a private sector lender on condition of anonymity. SBI is considered to be the barometer for the banking industry.

He believes it is a matter of time that HDFC Bank, ICICI Bank and other commercial banks will follow suit. The former has already cut its savings deposit rate.

While the banker feels that lower deposit rates will give better credit accessibility to borrowers, especially home buyers and small business owners, a second private sector banker said: "Banks have little choice, but to cut deposit rates to protect their NIMs (net interest margins)."