Perspective on SBI rate cut announcement of 50 - 75 bps

Mr Parth Mehta, Managing Director of Paradigm Realty on the recent SBI rate cut announcement of 50 - 75 bps

“The recent cuts by SBI on various term deposit rates were expected since long as the benefits of repo rates cut by RBI for consecutive times in 2019 wasn’t transferred to the consumers. Banks today are flushed with liquidity due to higher fixed deposits availed by consumers and lowered lending exposure stance to NBFC , however the retail lending side is slow due to high borrowing rates which still haven’t been lowered. Now the transmission in the form of lower cost of borrowing to consumers can be undertaken rapidly only when even deposit rates are lowered in sync with lowered repo rates to bring MCLR of banks down. This will help CASA of banks which is function of Current Account and Savings account composition,interest rate on savings account as well as term deposits have to be lowered for lending rates to consumers to be cheaper.  Seeing SBI moves most of other banks will follow the suit, overall MCLR of all banks will be lowered, this will enable some investment cycles to kick in with lower cost of funds to banks resulting in lower cost of lending to consumers for home , auto loans etc inducing better consumer spending in economy helping sectors like auto , consumer electronics as well as real-estate.”