Finance Minister P Chidambaram has made a call for a 50 basis point cut in interest rates, ahead of the January-end monetary policy.
All eyes are now on Governor Reddy and whether he will cut the benchmark rates.
The FM’s call was to the RBI and it looks like the RBI is not going to oblige immediately.
It looks like the FM’s call was to the bankers themselves and that within the given monetary policy, he would desire half a percentage point cut in both deposit and lending rates.
But, at the moment, it looks like it could be extremely difficult for bankers to oblige. For one thing, bank Chairman do not have to listen to the Finance Minister.
They have to also oblige their other shareholders, non-government shareholders and over there they have to look at their net interest margins.
The other factor is that all these banks have raised deposits, especially bulk deposits i.e. big deposit from corporates, at huge rates, like 9.25%, for the better part of last year.
So, the average cost of incremental money is well over 9%. Therefore, they cannot lend below that level.
It is possible that most of these bulk deposits, which they had to raise before March 31 last year, when there was a genuine liquidity crunch because of all the CRR hikes; all those bulk deposits will mature by this March.
The possibility is the arithmetic will work towards the shedding of rates after March 31 and that is what the best guess of bankers is. They believe there will be no immediate cut in rates.
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