INSUBCONTINENT EXCLUSIVE:
the central bank cut its key lending rate in a bid to spur growth.The reluctance of bankers to pass on all of Thursday's surprising 25
basis point rate cut is a blow to Prime Minister Narendra Modi's government, which hopes lower lending rates will lift growth and job
creation ahead of general elections due by May.Four senior public and private sector bankers told Reuters on Friday that they might only cut
lending rates by 5-10 basis points
A move of that size would have a negligible impact in boosting credit, or in reducing refinancing costs."If there is a lot of (government)
pressure, then I may cut by a notional 5-10 basis points," said the head of a big state-run bank who asked for anonymity due to sensitivity
of the subject."That may have a psychological impact on corporates but will not really help in boosting credit growth or lowering borrowing
costs."Economic growth has slowed, with private investments slumping and consumption gains muted
Annual industrial output growth in November rose 4.1 per cent, down from October's 8.4 per cent.For the banks - often stuck with bad loans
and heavy provisioning - any cut in loan rates is unlikely without a corresponding fall in deposit rates, which will require cash conditions
to improve significantly, say bankers.And banks are reluctant to cut deposit rates in the fiscal year's last quarter, as they are keen to
shore up their books while not losing hefty deposits.Banks price their benchmark loan rates, known as the marginal cost of funds based
lending rate (MCLR), mainly based on the cost of deposits."MCLR might not come down significantly very soon as any meaningful change will
depend on cost of funds," said Parthasarathi Mukherjee, managing director and chief executive officer of private lender Lakshmi Vilas
Bank.Unless banking system liquidity rises, he said, "we are not seeing any substantial fall in lending rates across the board any time
