MUMBAI: In a move that will put pressure on other lenders to cut rates, HDFC Bank has slashed its base rate by 35 basis points to 9.35% from 9.7% earlier. The rate cut, which is the sharpest by any bank this year, will make the private bank the cheapest lender for blue chip corporates.
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Speaking to TOI, Ashish Parthasarthy, head of treasury, said that the asset liability management committee took a decision on Monday following a reduction in the cost of funds for the bank. The bank had earlier this month reduced its deposit ratesearlier and currently offers a peak return of 8.2% under its regular fixed deposits. "Only recently we have seen other banks cut deposit rates. We will revise deposit rates as well. If the trend is downwards, I can confidently say that we will reduce our deposit rates as well," he said.
The move by the private bank will put the country's largest lender in a quandary. State Bank of India (SBI) has lower headroom to cut rates because a much larger chunk of its outstanding loans — including home loans and auto loans — are pegged to the base rate. But, given the competition, SBI will be forced to make some revision in its rates. In the case of HDFC Bank, most of the retail loans — auto loans and loans against shares — are at a fixed rate. HDFC Bank does not directly extend home loans. It markets them on behalf of parent HDFC and subsequently buys them from the corporation. The interest rates on home loans sold by HDFC Bank are determined by the benchmark rate of parent HDFC.
On Monday, Canara Bank also reduced its base rate by 10 basis points to 9.9%. Axis Bank, another large private lender, reduced its deposit rates by up to 50 basis points. The cut was highest in the shorter end for deposits between three months to a year. The reduction is seen as a precursor to bringing down lending rates.
Given the slow demand for credit, top corporates have been raising funds at below the base rate by floating commercial paper issues, which are in turn subscribed by banks. "There is still a large difference between the commercial paper market and our base rate. So,the commercial paper market will still remain attractive for those who have access and if we have customers who are not borrowing on the loan side we will buy their commercial papers," said Parthasarthy.
www.sevagiri.com
Speaking to TOI, Ashish Parthasarthy, head of treasury, said that the asset liability management committee took a decision on Monday following a reduction in the cost of funds for the bank. The bank had earlier this month reduced its deposit ratesearlier and currently offers a peak return of 8.2% under its regular fixed deposits. "Only recently we have seen other banks cut deposit rates. We will revise deposit rates as well. If the trend is downwards, I can confidently say that we will reduce our deposit rates as well," he said.
The move by the private bank will put the country's largest lender in a quandary. State Bank of India (SBI) has lower headroom to cut rates because a much larger chunk of its outstanding loans — including home loans and auto loans — are pegged to the base rate. But, given the competition, SBI will be forced to make some revision in its rates. In the case of HDFC Bank, most of the retail loans — auto loans and loans against shares — are at a fixed rate. HDFC Bank does not directly extend home loans. It markets them on behalf of parent HDFC and subsequently buys them from the corporation. The interest rates on home loans sold by HDFC Bank are determined by the benchmark rate of parent HDFC.
On Monday, Canara Bank also reduced its base rate by 10 basis points to 9.9%. Axis Bank, another large private lender, reduced its deposit rates by up to 50 basis points. The cut was highest in the shorter end for deposits between three months to a year. The reduction is seen as a precursor to bringing down lending rates.
Given the slow demand for credit, top corporates have been raising funds at below the base rate by floating commercial paper issues, which are in turn subscribed by banks. "There is still a large difference between the commercial paper market and our base rate. So,the commercial paper market will still remain attractive for those who have access and if we have customers who are not borrowing on the loan side we will buy their commercial papers," said Parthasarthy.
Source - TOI
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