Banks are wary of possible slides in market
San Francisco, CA -- (SBWIRE) -- 02/01/2013 -- The Reserve Bank of India (RBI) made a maneuver on Monday to reduce the pressure on auto, home, and corporate loans repo rate by 0.25%. The RBI is also set to reduce the cash-reserve ratio (CRR) by the same amount.
The reduction on the rates will be put into effect in early February, when several banks are set to cut their lending rates, which would be reflected in reduced EMI burden.
The home loans are currently hovering within a 10%-12% per month range, and while those are expected to drop in the coming months, they would have a cascading effect on heavier EMIs paid.
The repo rate of interest, which is what the RBI lends money to banks with, was cut last April, and now stands to be cut again. It currently sits at 7.75%, and the liquidity infusing CRR stands at 4%. The CRR was recuded by this same margine in November of 2012, however it seems to have not had the desired effect fast enough.
The RBI move had a mixed effect on markets the last time it was implemented. The BSE Sensex had a preliminary jump, bujt shortly thereafter declined. Many leading bankers, such as the State Bank of India, ICICI, and the Oriental Bank of Commerce have all hinted at a reduction of interest rates. Each have also been open about expressing hope that their own loan quality or capital adequacy ration would see better numbers.
Chanada Kochhar of the ICICI Bank stated there there is sure to be a transition on the lending side when moves such as these are made, while deposits front and the bank will wait and watch.
“There is going to be a lag but we will not take a hit on NIM. The cuts are positive for EMIs,” she said.
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