Will cut base rate soon; expect other banks to follow: BoI

Written By Unknown on Rabu, 08 April 2015 | 15.45

A day after the RBI exhorted Indian banks to cut lending rates, a call that was heeded almost immediately by SBI and HDFC Bank (which slashed their base rates by 0.15 percent in the evening), Bank of India  CMD VR Iyer said the bank may cut its own base rate soon.

In an interview with CNBC-TV18 Anuj Singhal and Ekta Batra, Iyer said she expected other banks to follow suit and added that banks may cut lending rates by about 25-50 basis points (0.25-0.5 percent).

Cost of funds have come down in a significant manner in this quarter, she said, but added that margins for banks may also take a slight hit when lending rates are cut.

Below is the transcript of the interview on CNBC-TV18.

Anuj: When can we expect rate cuts from other banks including your bank, Bank of India (BOI)?

A: A rate cut from Bank of India can be expected soon. We are working on it and we should be coming out maybe in a couple of days' time. We will be holding our asset liability management committee (ALCO) meeting and then also go to the board and we will be definitely coming out.

This was very much expected in fact during the last quarter itself, bankers did indicate that rate cuts will definitely start after the monetary policy announcement.

Of course, three banks have already announced base rate reduction and other banks would definitely follow.

Ekta: What is the quantum that you think you could possibly pass on?

A: Any bank would definitely look at 20-25 basis points reduction in the base rate. That is because the cost of funds have definitely gone down marginally and it will go down more significantly in the current quarter.

In any banks, real retail deposits of less than Rs 1 crore are around 55-60 percent. While rate-sensitive bulk deposits of Rs 10 crore and above form about 35-40 percent. Of course, as per RBI definition, anything above Rs 1 crore is a bulk deposit but these days, retail deposits are also often between Rs 1-10 crore.

But generally, the bulk deposits come in for 6 months or a year, and most have been shed by the bankers in the month of March because of low credit pick up. So you will see interest expenses going down in the current quarter.

Bankers will definitely start seeing cost fund reduction from the current quarter in a more in a significant manner than what we have really seen in the last quarter of the last financial year.

Anuj: What could be the margin trajectory for PSU banks like yours over the next 2 or 3 quarters?

A: Margin trajectory of course will be slightly -- maybe less but then it all depends upon the mix of deposit any banker has in his profile. It may not have much significant impact but net interest margin (NIM) will slightly go down in the process. Once of course the credit picks up it will get utiltised.

Ekta: What is your sense in terms of what you said earlier so can we assume that Bank of India could possibly contemplate 20-25 basis points base rate cut whenever the ALCO decides?

A: I hope so we should be in that range certainly

Ekta: Can you tell us comparatively what is the cost of funds currently for you all say compared to the previous quarter say compared to even Q3 how was Q4 and how is Q1 looking?

A: I don't have the figures right now but it will be slightly lower than the third quarter. Definitely the fourth quarter cost of funds would definitely be on the lower side but April-June quarter will see a significant reduction in entire cost of deposit as well as cost of funds.

Bank of India stock price

On April 08, 2015, at 13:54 hrs Bank Of India was quoting at Rs 206.75, down Rs 0.4, or 0.19 percent. The 52-week high of the share was Rs 356.75 and the 52-week low was Rs 191.50.


The company's trailing 12-month (TTM) EPS was at Rs 34.89 per share as per the quarter ended December 2014. The stock's price-to-earnings (P/E) ratio was 5.93. The latest book value of the company is Rs 449.87 per share. At current value, the price-to-book value of the company is 0.46.


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