Good news at last: Retail lending rate cuts may be on the way

Good news at last. Bankers have said the cut in statutory liquidity ratio (SLR) of banks may result in in a reduction in retail lending rates.

However, they have ruled out any reduction in rates on short-term deposits, but said long-term deposit rates are likely to be cut.

Statutory liquidity ratio is the proportion of deposits banks are mandated to hold in government bonds.

The Reserve Bank of India (RBI), earlier in the day cut the SLR to 23 percent from 24 percent, and said the measure was aimed at increasing fund flow into productive sectors.

The bankers, at a press conference after the RBI policy review, said the RBI review was balanced and that the SLR cut will release around Rs 60,000 crore into the system.

This will result in increased fund flow into the real sector, they said.

An increased retail lending will result in competition which may eventually bring down rates in the segment, said Pratip Choudhary, chairman of the country’s largest bank State Bank of India.

However, ICICI Bank Managing Director Chanda Kochchar said it is not clear how soon the fund flow will start.

The bankers said the RBI policy was balanced and the SLR cut is a measure aimed at boosting growth.

Choudhury admitted that all banks hold more than mandated SLR bonds, but said a buffer of more than 3 percent is not required.

Banks are holding an SLR of 27 percent as against the mandated 23 percent at present.

According to Chaudhury, the bank has an SLR holding of 28 percent, which the bank keep or use to borrow more. He said a call on rate cut will be taken by the asset liability committee of the banks.