Soon after the RBI’s announcement, IDBI Bank reduced its home and educational loan rates by 50 basis points with immediate effect. The rate cut would be applicable to both existing and new customers, the bank said. Following the revision, home loans would now be available at an interest rate of 11 per cent against 11.50 per cent earlier. Simultaneously, the margin on housing loans has been enhanced from 15 per cent to 20 per cent for loans of up to Rs 30 lakh and to 25 per cent for loans over Rs 30 lakh, the bank said.

Punjab National Bank which had cut home and personal loan rates last week, had reduced prime lending rate (PLR) on Friday. Other banks are expected to come out with a rate revision in the coming weeks.

Reeling under pressure of costly borrowing, corporates will surely heave a sigh of relief as the cut in CRR, statutory liquidity ratio (SLR) and repo rate by RBI will ease liquidity in the system thereby lowering interest rates.

ICICI Bank joint MD Chanda Kochhar said that the steps taken by the banking regulator will bring down interest rates. “It shows the mindset of the regulator that is continuously monitoring the situation and coming up with measures on dynamic basis,” she said.

However, there could be a time lag for the interest rates to come down. As Bank of India chairman and managing director T S Narayanasami said, “Ideally speaking, liquidity should bring down interest rates, but this may take a month or two because banks have a lot of sanctions in the pipeline, which are yet to crystallise into disbursements.”

IDBI chairman Yogesh Agarwal said, “By using the repo rate, the RBI is signalling that the overnight rates must fall in the corridor within the reverse repo and the repo rate. All these are strong growth signals,” he said. Inter-bank call money rate closed at 17.50-18 per cent during the weekend.

Bankers say that the steps would bring relief to the entire banking system and ease lending and deposit rates. “I would say the system would need some more liquidity for the whole economic cycle to go back to active levels. One will still have to see reduction in market rates. Deposit rates and lending rates have not come down,” Kochhar said.

Narayanasami said there is pressure on deposits, liquidity alone cannot solve the issue of certain banks, which are currently operating on a high credit-deposit ratio.

Banks, which had been on an advertisement spree asking consumers to park their savings in fixed deposits, now say that rates are expected to fall to single digits. “We see single digit deposit rates soon,” Punjab National Bank CMD K C Chakrabarty said.

As banks are unanimous that the interest rates will come down over the month, Bank of Baroda CMD MD Mallya said his bank may take a call on reducing interest rates early next week.

With agencies