Indian banks aim to boost
credit growth with sharp rate cuts
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[January 02, 2017]
By Devidutta Tripathy and Suvashree Choudhury
(Reuters) - Indian banks, led by market leader State Bank of India,
announced sharp cuts to their lending rates after a recent surge in
deposits, raising hopes that lower borrowing costs will help spark
credit growth in Asia's third-largest economy.
SBI, the country's biggest lender by assets, said on Sunday it had cut
its so-called marginal cost of funds-based lending rates (MCLR) by 90
basis points, while unveiling new products for mortgage loans, one of
the fastest-growing areas.
Several other lenders including Punjab National Bank, Union Bank of
India, Kotak Mahindra Bank and Dena Bank also cut their lending rates by
45-90 basis points across tenures. Analysts expect more lenders to
Banks have received an estimated 14.9 trillion rupees ($219.30 billion)
in old 500, and 1,000 rupees notes from depositors since Prime Minister
Narendra Modi's government on Nov. 8 unexpectedly banned the banknotes
in a bid to fight counterfeiting and bring unaccounted cash to the
That had raised expectations banks would have room to cut lending rates,
which is seen as vital to increase credit growth and spark a revival in
Arundhati Bhattacharya, chairman of SBI, said at a news briefing on
Monday, the rate cuts were intended to "jump start" credit growth and
could raise it by 100-200 bps in the year ending in March.
SBI now expects credit growth for 2016/17 fiscal year to be 8-9 percent,
Bhattacharya said, still lower than the lender's previous formal
guidance of 10-12 percent growth.
Any signs of a revival in credit could ease some of the worries from
Modi's move, which has sparked a severe cash shortage that has paralyzed
parts of the economy.
A private survey on Monday showed factory activity plunged into
contraction in December as the currency crackdown severely hurt output
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An electrician puts lights on the logo of State Bank of India at its
main branch in Mumbai, India, March 9, 2016. REUTERS/Danish Siddiqui/File
Although India's gross domestic product grew 7.3 percent in the July-September
quarter from a year earlier, the fastest pace of growth among large economies,
much of that has been led by consumer demand.
Worries that profit margins at banks would be hurt hit the shares on Monday,
with SBI falling 2.6 percent.
lenders took steps to protect their margins. SBI, for example, raised the
premium it charges on home loans to 65 basis points above the reduced one-year
MCLR of 8 percent, according to details released on Monday.
The rate cuts also come after Prime Minister Narendra Modi on Saturday
admonished banks to "keep the poor, the lower middle class, and the middle class
at the focus of their activities," and to act with the "public interest" in
Modi's comments were made in a special New Year's eve speech in which he
defended his ban on higher-value cash notes and announced a slew of incentives
including channeling more credit to the poor and the middle class.
"The combined impact of banks cutting lending rates and subvention provided by
the government to small businesses is likely to help turn around growth faster
than expected in the next fiscal year," said Saugata Bhattacharya, chief
economist at Axis Bank, the third-biggest Indian lender.
(Editing by Jacqueline Wong and Rafael Nam)
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