Vijaya Bank to cut interest rates after RBI's review
By Joseph Samson
Jan 16, 2008
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Mangalore: Reserve Bank of India's (RBIs) monetary policy review, which is expected at the end of this month is eagerly awaited by many banks. Vijaya Bank a mid-sized public sector bank is also contemplating to revise its interest rates after the signals from RBI.

Keeping in mind the reduced credit off-take, mostly due to the prevailing high interest rates, Union Finance Minister, P. Chidambaram suggested various public sector banks to reduce their interest rates by 50 basis points. The Finance Minister expected that this reduction will encourage investment, consumption and will  boost economic growth.

The last monetary policy review by RBI, which was conducted on 31st October last year witnessed a hike in Cash Reserve Ratio (CRR) by 50 basis points. Though the RBI didn't touch other rates, this step mopped up an estimated 16,000 crore from the market and smaller bank's felt the pinch as their cost of funds increased. Major private and public sector banks felt a decline in their credit off-take during last year and later promoted festive discounts, which offered reduced interest rates and lowered processing fees. However, none of the bank increased their interest rates on loan products.

Most of the borrowers still feel that the interest rates are on the higher side and with the recent hike in floating interest rates throwing budgets of middle class household out of gear, not many are interested in taking new loans. High interest rates has particularly affected the auto loan market, though the car loan segment has performed somewhat better, two-wheeler loan off-take has declined sharply.

Bankers also feel that further reduction in interest rates without positive signals from RBI will be difficult. Prakash P. Mallya, CMD Vijaya Bank said, "a reduction of 0.5 percentage point in lending rates will lead to reduction in deposit rates by 0.5 percentage point. Depositors may not like this reduction."

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