Upload File

rbi tweaks base rate rules_ can banks still avoid cutting rates_ - moneycontrol

  • Home
  • Documents
  • RBI Tweaks Base Rate Rules_ Can Banks Still Avoid Cutting Rates_ - Moneycontrol
3
3/13/2015 RBI tweaks base rate rules: Can banks still avoid cutting rates? Moneycontrol.com data:text/html;charset=utf8,%3Cp%20style%3D%22padding%3A%200px%200px%2020px%3B%20margin%3A%200px%3B%20outline%3A%200px%3B%20b… 1/3 T he Reserve Bank's move asking banks to notify the base rate, or the minimum lending rate, at least once in every three months based on cost of funds is seen as a nudge to lenders to pass on changes in policy rate to borrowers.The apex bank had cut repo rate by 25 bps last week when the world was least expecting it. Will state lenders bite the bullet and pass on the rate cut benefits to customers? In an interview to CNBCTV18, P Pradeep Kumar, MD Corporate Banking, SBI and Ram Sangapure, Executive Director at Punjab National Bank clarify their positions. Below is the transcript of P Pradeep Kumar and Ram Sangapure's interview with Latha Venkatesh and Sonia Shenoy on CNBCTV18. Transcript edited by Jhini Sinha Phira: Latha: You have announced a series of deposit cuts, you have not cut your base rate in the last several months. With the new rules, will that become tough? Will you have to cut lending rates when you cut deposit rates? Kumar: I don’t think so. I think only one small rule has been changed in the computation of base rate. They have said when for the computation of cost of deposit you take the interest rate on a particular tenure of the deposit, it should be the one which has the largest deposit base. As otherwise there is no change. This is only clarificatory circular. I don’t think it is going to impact anything. Sonia: What is your own view on this and more importantly when will big banks like yours go ahead and cut lending rates because despite the rate cut coming in, we haven’t seen any large banks pass it on just yet? Sangapure: Yes, I think it has an implication on computation of base rate to a certain extent. Some of the banks for instance have taken a particular bucket where probably the deposit share is not much in the total volume of deposit. Now if we switch it over to a bucket where the share of a deposit is much higher and the rate of interest of that bucket is taken for a computation of a base rate as a benchmark rate then certainly there will be some impact on computation per se. However, this is not the only factor which affects the computation of a base rate. The benchmark rate as per the circular, there are threefour options before the bank. This is one of the options, some of the banks may go for marginal cost of deposit, some may go for an average cost of the deposit. So if bank is going for average cost of a deposit, probably this stipulation of Reserve Bank of India (RBI) for a particular bucket which has the largest share has no impact so far as computation of base rate is concerned. But those banks who had taken applicable rate of interest for a particular bucket where the deposits are very minimum, for those banks, certainly this will have an implication. Latha: But what is the prevailing practice? What is your input into the base rate? Sangapure: Twothree different practices are adopted in the banking industry. Some banks have gone for an average

Upload: karan-suri

Post on 26-Sep-2015

212 views

Category:

Documents


0 download

Report

DESCRIPTION

rbi base rate cut

TRANSCRIPT

  • 3/13/2015 RBItweaksbaseraterules:Canbanksstillavoidcuttingrates?Moneycontrol.com

    data:text/htmlcharset=utf8,%3Cp%20style%3D%22padding%3A%200px%200px%2020px%3B%20margin%3A%200px%3B%20outline%3A%200px%3B%20b 1/3

    T heReserveBank'smoveaskingbankstonotifythebaserate,ortheminimumlendingrate,atleastonceineverythreemonthsbasedoncostoffundsisseenasanudgetolenderstopassonchangesinpolicyratetoborrowers.Theapexbankhadcutreporateby25bpslastweekwhentheworldwasleastexpectingit.

    Willstatelendersbitethebulletandpassontheratecutbenefitstocustomers?InaninterviewtoCNBCTV18,P

    PradeepKumar,MDCorporateBanking,SBI andRamSangapure,ExecutiveDirectoratPunjabNationalBank

    clarifytheirpositions.

    BelowisthetranscriptofPPradeepKumarandRamSangapure'sinterviewwithLathaVenkateshandSonia

    ShenoyonCNBCTV18.TranscripteditedbyJhiniSinhaPhira:

    Latha:Youhaveannouncedaseriesofdepositcuts,youhavenotcutyourbaserateinthelastseveralmonths.

    Withthenewrules,willthatbecometough?Willyouhavetocutlendingrateswhenyoucutdepositrates?

    Kumar:Idontthinkso.Ithinkonlyonesmallrulehasbeenchangedinthecomputationofbaserate.Theyhavesaid

    whenforthecomputationofcostofdeposityoutaketheinterestrateonaparticulartenureofthedeposit,itshouldbe

    theonewhichhasthelargestdepositbase.Asotherwisethereisnochange.Thisisonlyclarificatorycircular.Idont

    thinkitisgoingtoimpactanything.

    Sonia:Whatisyourownviewonthisandmoreimportantlywhenwillbigbankslikeyoursgoaheadandcut

    lendingratesbecausedespitetheratecutcomingin,wehaventseenanylargebankspassitonjustyet?

    Sangapure:Yes,Ithinkithasanimplicationoncomputationofbaseratetoacertainextent.Someofthebanksfor

    instancehavetakenaparticularbucketwhereprobablythedepositshareisnotmuchinthetotalvolumeofdeposit.

    Nowifweswitchitovertoabucketwheretheshareofadepositismuchhigherandtherateofinterestofthatbucket

    istakenforacomputationofabaserateasabenchmarkratethencertainlytherewillbesomeimpactoncomputation

    perse.

    However,thisisnottheonlyfactorwhichaffectsthecomputationofabaserate.Thebenchmarkrateasperthe

    circular,therearethreefouroptionsbeforethebank.Thisisoneoftheoptions,someofthebanksmaygofor

    marginalcostofdeposit,somemaygoforanaveragecostofthedeposit.Soifbankisgoingforaveragecostofa

    deposit,probablythisstipulationofReserveBankofIndia(RBI)foraparticularbucketwhichhasthelargestsharehas

    noimpactsofarascomputationofbaserateisconcerned.Butthosebankswhohadtakenapplicablerateofinterestfor

    aparticularbucketwherethedepositsareveryminimum,forthosebanks,certainlythiswillhaveanimplication.

    Latha:Butwhatistheprevailingpractice?Whatisyourinputintothebaserate?

    Sangapure:Twothreedifferentpracticesareadoptedinthebankingindustry.Somebankshavegoneforanaverage

    http://www.moneycontrol.com/india/stockpricequote/banks-publicsector/statebankindia/SBIhttp://www.moneycontrol.com/india/stockpricequote/banks-publicsector/punjabnationalbank/PNB05

  • 3/13/2015 RBItweaksbaseraterules:Canbanksstillavoidcuttingrates?Moneycontrol.com

    data:text/htmlcharset=utf8,%3Cp%20style%3D%22padding%3A%200px%200px%2020px%3B%20margin%3A%200px%3B%20outline%3A%200px%3B%20b 2/3

    rateofinterestforthepreviousquarter.Theytakethatasabenchmarkrateofinterest.Somebankshavegonefora

    particularbucketlike90daysto180days.

    Latha:Iamaskingyou,whatdothemajorityofthebanksdo?Dotheytakedepositratesordotheytake

    averagecost?

    Sangapure:IwontbeabletotellyoubecauseIhaventdoneanysurveybutmostofthebankshavegoneforan

    averagecostforpreviousquarter.

    Latha:WhatdoyouhaveatPNB?

    Sangapure:Wehaveaveragecostmethodology.Wewillreviewthatinline.

    Latha:WhatisSBIsinputintothebaserate?

    Kumar:IdontthinkwecandiscussitonTV.

    Latha:Forthesectorasawhole,yousaidthatitwillnothaveanimpactbutforthosebankswhicharetakingdeposit

    ratesasaninputintocalculatingbaserate,ifyouchangethedepositratewiththemaximumshares,onethreeyear

    bucketthenlogicallyshouldnotthebaseratebeaffected?

    Kumar:IthinkrecognisingthisRBIhasgivenaleewaytobankstolookattheirbaseratecomputationformula.

    Earliertheysaid,youcanreviewitonlyafteraperiodoffiveyears.Nowtheyhavesaidyoucanreviewitaftera

    periodofthreeyears.Thelasttimebanksdecidedonthebaserateformulawasin2010soitismorethanthreeyears

    nowbankswillcertainlyhavearelookattheformulatheyareusingforcomputingbaserates.Bankswhichhave

    peggedtheirratetopossiblytothedepositrateofaparticulartenurewillhaveanopportunitytorelookatthebaserate

    formula.ThatiswhattheRBIscircularisallowingthebankstodohavearelookatthecomputationofthebaserate

    formulaandtheinputsthataregoingintothecalculationofit.

    Latha:Isthatwhatyouexpectisgoingtohappen?Mostofthebankswithdepositrateastheinputinto

    calculatingthebaseratewillhaveameetingandwillchangeittoaveragecost,isthatthemostlikelyoutcome?

    Kumar:Ithinkallbankswillreviewtheirbaserateformulanotonlybankswhicharepeggedtheirbaseratetoa

    depositrateofaparticulartenure.Ithinkthisgivesanopportunityforallbankstohavearelookattheirbaserate

    computationformula.IamsureeverybanksAssetLiabilityCommittee(ALCO)willsitanddecidewhattodowithit

    nowthattheyhaveanoptiontoreviewitbeforetheendoffiveyears.Nowthateverybankhascompletedthreeyears

    becausewediditinto2010,IamsureeverybanksALCOwillhavearelookattheformulaforbaseratecomputation.

  • 3/13/2015 RBItweaksbaseraterules:Canbanksstillavoidcuttingrates?Moneycontrol.com

    data:text/htmlcharset=utf8,%3Cp%20style%3D%22padding%3A%200px%200px%2020px%3B%20margin%3A%200px%3B%20outline%3A%200px%3B%20b 3/3


GROWING TOGETHER - Moneycontrol

Shri Lakshmi Cotsyn Limited - Moneycontrol

BETUL OIL LIMITED - Moneycontrol

Annual Report 2013-14 - Moneycontrol

50 - Moneycontrol

building - Moneycontrol

muthoot - Moneycontrol

CORPORATE NFORMATION - Moneycontrol

Strength Rules_ How to Get Stro - Danny Kavadlo

Notice 15.06.10 exp:Magma - Moneycontrol

MAKING IN - Moneycontrol

SUMEDHA FISCAL SERVICES LIMITED - Moneycontrol

INSPIRATION BEGINS AT HOME - Moneycontrol

Lancor Holdings Limited - Moneycontrol

Bambino Agro Industries Limited - Moneycontrol

Alka Securities Limited - Moneycontrol

BUILDING A STRONGER ENTERPRISE - Moneycontrol

UNIVERSAL CABLES LIMITED - Moneycontrol

[Qualification since - Moneycontrol

CP5C - Moneycontrol

SUBWAY FINANCE - Moneycontrol

Manufacturing - Moneycontrol

Nagarjuna Annual Report - Moneycontrol

38 th Annual Report - Moneycontrol

The WB Municipal _Building_ Rules_ 2007.pdf

UPL Limited - Moneycontrol

MAGMA - Moneycontrol

GEMINI COMMUNICATION LIMITED - Moneycontrol

Punjab National Bank - Moneycontrol

NET SALES - Moneycontrol

moneycontrol WAP site

Page 0 to 23 - Moneycontrol

The WB Municipal _Building_ Rules_ 2007

KESORAM INDUSTRIES LIMITED - Moneycontrol

BRAND REALTY SERVICES LIMITED - Moneycontrol