Softer rates ahead?
Days after Reserve Bank of India (RBI) Governor Y.V. Reddy maintained status quo on key interest rates, several banks, led by the state-owned State Bank of India (SBI) slashed their prime lending rates (PLR) by 25 basis points.
Was it mere tokenism to please Finance Minister P. Chidambaram, who has called for such a move, or a genuine effort to address the slowing down of retail credit flows, especially to the housing and auto sectors?
An ode to tokenism Rising inflation may stop banks from travelling further down the rate cut road. | |
| Financial institutions | PLR |
| State Bank of India | 12.50% |
| Canara Bank | 13% |
| HDFC | 13.75% |
| Axis Bank | 14.75% |
| Rate cut for all: 0.25% Source: BT research | |
Interestingly, not many private bankers have followed suit, despite Chidambaram’s exhortations. Aditya Puri, Managing Director, HDFC Bank, is guarded on this. “We will have to see what RBI does going forward,” he says, adding: “the central bank could have reduced CRR or the risk weights on retail assets. The higher risk weights add to the cost of delivery of credit.”
Meanwhile, the inflation rate, which has been ruling at 4 per cent levels over the past few months, may start rearing its head again following the government’s decision to raise fuel prices for the first time in two years. This is expected to push WPI inflation by another 10-15 basis points.
The government can ill afford a secular rise in price levels in a year when several states will go to polls. Much will depend on the kind of Budget Chidambaram presents on February 29. But given the combination of political and economic factors at play, don’t expect Reddy to play Santa Claus anytime soon.
— Anand Adhikari
