The Reserve Bank cut its repo rate by 25 basis points on January 15 in an unexpected move; it followed with another repo cut a fortnight later, again outside the policy meeting. The unscheduled cuts were meant to drive down lending rates, essential to kick-start consumption growth in the economy.
However, none of India's big lenders, including State Bank of India and ICICI Bank, seemed to have got RBI's message as base rates (minimum lending rates) continued to be in double digits weeks after RBI's first repo cut.
The non-transmission of rate cuts forced RBI Governor Raghuram Rajan to pull up banks on Tuesday, following which SBI - India's biggest lender - announced a 15-basis-point reduction in base rate on the same day.
Hours after SBI slashed its lending rate, other big lenders - who had publicly defended their decision to not slash lending rates - announced reduction in base rates. HDFC Bank and ICICI Bank cut base rates by 15 basis points and 25 basis points on Tuesday, while Axis Bank cut its base rate by 20 basis points on Wednesday.
Fund manager Sandip Sabharwal accused banks of working like a cartel to control interest rates in the country. In a tweet, Mr Sabharwal, who has previously worked with SBI Mutual Fund and JM Financial said, "HDFC Bank cuts base rate, exactly the same as SBI. Banks are the biggest cartel in this country. Cement,Tyres etc only follow."
HDFC Bank cuts base rate, exactly the same as SBI. Banks are the biggest cartel in this country. Cement,Tyres etc only follow.
— sandip sabharwal (@sandipsabharwal) April 7, 2015
"Banks trying too hard to prove that they are not a cartel. SBI, HDFC 0.15 per cent cut ICICI 0.25 per cent cut and now Axis 0.20 per cent cut. Interesting," he said in another tweet.
Banks trying to hard to prove that they are not a cartel SBI, HDFC 0.15% cut ICICI 0.25% cut & now AXIS 0.20% cut interesting
— sandip sabharwal (@sandipsabharwal) April 8, 2015
Many others took to Twitter to express their anger at different banks working like one big family, when it comes to reducing lending rates.
SBI and HDFC Bank reduce base rate by 0.15% to 9.85% in tandem. The biggest cartel. We need more than 100 banks to see proper competition.
— Emmanuel (@myownniche) April 7, 2015@arunjaitley FM must act against profiteering by banks, with exorbitant NIMs. Banks have formed a cartel to ensure high interest rates. Act
— sushil bakshi (@bakshisushil) April 7, 2015
Other analysts said it was competitive pressure that drove one bank after another to lower lending rates once the floodgates were opened by SBI. HDFC Bank, ICICI Bank and Axis Bank, all compete with SBI for loans and deposits, so their decision to follow SBI is understandable as none of them would have liked to lose business, analysts added.
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