India’s state-run banks were trading lower on fears that margins may be hit after some cut their base rate, reacting to a government directive to review lending rates after RBI’s deeper than expected cut in its policy rate on Tuesday.
The fear is banks may not be able to bring down deposit rates, or cost of funds, as much as lending rates.
Bankers have said that it was difficult to bring down deposit rates when there were other competiting assets like small savings offering similar rates.
IDBI Bank, Punjab National Bank, Syndicate Bank and private lender ICICI Bank have all cut their base rates by 25 bps each.
There are expectations or fear in the market that government will force PSU banks to cut rates in a hurry that will result in some contraction in margins in coming quarters, Manish Ostwal, sector analyst at brokerage KR Choksey said.
He said that the repricing of deposit and asset books will result in 15-20 basis points margin contraction for state-run banks.
PNB, IDBI were down 0.5 percent each, while Bank of Baroda and Bank of India were down 1.2 percent and 1.7 percent respectively.
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Source – Agencies
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