The first cut

3 January 2017 By Una Galani Follow @ugalani

Admonished by Prime Minister Narendra Modi, banks are slashing lending rates up to 90 basis points. That is critical to kick-starting credit growth and thus the economy. But all the uncertainties created by a nationwide cash crunch mean it is too soon to cheer a revival.

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State Bank of India, the country's largest bank by assets, said on Jan. 1 that it had cut its lending rate by 90 basis points.

The bank’s new so-called “marginal cost of funds” lending rate is 7.75 percent for overnight deposits and 8 percent for one-year deposits.

Several other lenders including Punjab National Bank, Union Bank of India, Kotak Mahindra Bank, and Dena Bank also cut their lending rates by 45 to 90 bps.

Arundhati Bhattacharya, chairman of SBI, said on Jan. 2 that the rate cuts were intended to "jump start" credit growth. That could raise credit growth at SBI by 100 to 200 bps in the year ending in March, to a total of 8 to 9 percent, Bhattacharya said.

The Reserve bank of India has cut the policy rate – the repo rate – by 175 bps since the start of 2015 but the country's lenders have been slow to pass on these lower rates to customers.

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