State Bank of India Chairman Rajnish Kumar on Monday said the bank currently did not have any headroom to cut deposit rates and thus could not cut its base lending rate.
Kumar, in an interview to news channel CNBC TV18, said the issue was that the bank needed to cut the rate on the deposit to cut the Marginal Cost of Funds based Lending Rate (MCLR), which is used to determine the lending rates for commercial banks.
The SBI chief was responding to a query on why the bank had not cut the marginal cost of funds based lending rates, or the MCLR and only cut the rate on home loans by 5 basis points despite 25 basis points cut by the central bank at its monetary policy review earlier in the month.
Earlier this month, the Reserve Bank of India (RBI) surprised markets by slashing the repurchase (repo) rate by 25 basis points to 6.25 per cent against the market expectations of a status-quo on the interest rate.
Following the rate cut by RBI, SBI, the country's largest lender, had announced only a 0.05 per cent cut in interest rate on home loans of up to Rs 30 lakh. Kumar had said that the bank had already cut the interest rate and would reduce it further with decline in the marginal cost of funding.
He further said that it was not possible to cut deposit rates as other banks were currently offering significantly higher interest rates on deposits and these would need to get slashed first in order for SBI to react.
"The headroom to cut the rates for deposits for State Bank of India does not exist as on date and that is my point," said Kumar. "In the current situation if I cut the rate of interest then I will have a problem."
RBI Governor Shaktikanta Das had said he would speak to bankers to ensure a quicker and better transmission of the policy rates in a meeting scheduled to take place in two-three weeks.
Among others, state-owned Bank of Maharashtra, which is under the PCA framework, announced a 0.05 percent cut in its marginal cost of funds based lending rate. The rate cut was only for the loans with six-month tenor, while it had been left unchanged in four other time categories including the one-year MCLR.
Edited by Chitranjan Kumar