State bank to reduce deposit rates before cutting lending rate

A senior official of State Bank of India, the country’s largest public sector lender informed that immediately there are no plans to cut lending rates at least not before reducing deposit rates

The official pointed out, “The (overall) effect of the measures taken by RBI will come with a lag. The cost of funds may not come down overnight”.

The official said a close monitoring is being down about the situation. The Asset-Liability Committee of the bank held the meeting last night to review the situation but no decision was taken on interest rates. The panel will be meeting once again today or on Friday.

Reserve Bank of India to permeate liquidity in the cash-starved system has reduced banks’ cash reserve ratio by 250 basis points in the last nine days to 6.5 per cent, including the 100-bps cut Wednesday.

On the other hand state-owned Punjab National Bank showed an immediate reaction on Wednesday’s RBI measures by reducing its home and car loan interest rates by 50 bps late Wednesday.

But State Bank of India will probably keep a watch on the situation for some more time.

“It is too early to decide whether to cut lending rates. And before lending rates, it is deposit rates which has to be reduced,” the official said.

On October 1, SBI had announced a new deposit scheme offering 10.5 per cent on 1,000-day deposits. Previously, the bank was offering 9.50 per cent on deposits having tenure of two years to less than three years.