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Bank PLRs, deposit rates won't be impacted: Experts

Team NetScribes

Bimal Jalan, Governor, Reserve Bank of India, has once again surprised the markets. While a rate cut was anticipated, the timing was not.

But what's the fallout of the 50 basis-point cuts in the bank rate and CRR (cash reserve ratio)? Most players do not see any cuts in lending or deposit rates of banks or financial institutions even as they see gains in the form of valuation of investments - income and equity schemes for mutual funds and gilts for banks. That's great news before March 31.

This is how some market experts reacted to Jalan's move:

P S Subramanyam, Chairman, UTI

"The rate cut is a step in the right direction. The valuation of UTI's income schemes will go up as they have been struck at fixed rates. As for the just launched schemes, the assured return is for one year and they will all be subject to review next year. As for new schemes, we will calibrate the reduction into them."

Shitin Desai, vice-chairman, DSP-Merrill Lynch Investment Bankers Ltd

"This is a pleasant surprise for the stock markets. Most bankers were hoping for a sharper cut but even 0.5 per cent is good enough at this stage considering that it has come earlier than expected. This should improve the overall buoyancy at the markets and now there is little reason for people to cry. One should expect a stronger opening for the equity markets next week, by at least 80-100 points."

Jitender Balakrishnan, Chief General Manager, IDBI

"The rate cuts mean that there will be ample liquidity in the near-term and that rates will not go up. I do not see any immediate reduction in the lending rates of term lending institutions. However, the lending rates for short-term finance will nudge downwards slightly. This should be good news for corporates. As far as borrowing rates in the market are concerned, I think banks and FIs (financial institutions) can push them down by 25 basis points depending on the maturity of the instrument."

Ashish Parthasarathy, Head of Treasury, HDFC Bank

"Though the rate cut has come much earlier than market expectation, the bond market has already discounted them over the past several days. We expect a further rate cut of 50 bps (basis points) though this will not happen before April 1. Till that time, banks will not reduce their lending or deposit rates. As far as the valuations of bank portfolios are concerned, most banks have already written back the provisions made. The recovery has been done and this has not been a major concern due to improving market scenario since January."

Pradeep Naik, Senior Dealer, Securities and Trading Corporation of India

"The money markets have firmed up after the announcement. However, at this point we do not expect prices to rise further because the market had already discounted 1 per cent cut in the last few weeks. Banks will not lower their lending rates as being the year-end, they would not like to take a hit on their balance sheets. They will instead wait for the central bank to cut these rates further by 50 bps; this is likely to happen in the next financial year."

Senior Treasury Official, Deutsche Bank

"The current rate cuts are an indication from the RBI that interest rates are headed downwards. Money market players are repositioning themselves and the prices are firming up. The small savings rate cut is expected to happen in the forthcoming budget without which the government's interest rate burden will continue to rise in the future."

Deepak Agrawal, Associate VP, Kotak Securities

"The Bank Rate and CRR cuts will have a long term impact on the stock markets boosting liquidity. Discount rates will come down, thereby improving valuations of scrips. This augurs well for the stock market. With the reduction in these rates, the cuts in bank PLRs might happen shortly. The PLR (prime lending rate) cut will lower cost of investments thus improving the overall investment sentiments in the country."

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