Tue, Jan 03, 2017 - Page 10 News List

State Bank of India foresees loans spike after it cut rates

Bloomberg

The State Bank of India, the country’s largest lender, is predicting an acceleration in loan growth from a 25-year low after slashing interest rates to their lowest level in at least six years.

The state-run lender cut lending rates based on the marginal costs of funds by 90 basis points across all tenures on Sunday. Other banks including Union Bank of India, Punjab National Bank and IDBI Bank Ltd also cut their marginal cost of funds based lending rates, after a surge in deposits following a cash ban in the country bought down the cost of funds.

Deposits have surged at a faster pace at Indian banks than loan growth after people started turning in 500-rupee (US$7.35) and 1,000-rupee banknotes that are no longer legal tender following a Nov. 8 last year decision by Indian Prime Minister Narendra Modi to ban high-value currency notes, effectively canceling 86 percent of cash in circulation.

This jump in deposits has cut the cost of funds for lenders, State Bank of India managing director Dinesh Khara said.

“The cut in lending rates will give an immediate boost to consumer loan growth and its ripple effect should have a positive impact on loan demand from companies,” Khara said in a telephone interview yesterday.

Loan growth at Indian lenders in the year to Nov. 25 fell to 5.8 percent, the slowest pace of growth since 1992, data compiled by Bloomberg shows.

State Bank of India shares fell 1.8 percent to 245.7 rupees at 9:54am in Mumbai yesterday, making it the biggest loser on the 10-member BSE Bankex Index that dropped 0.8 percent.

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