New Delhi: Earlier this month the Reserve Bank of India slashed repo rate, the rate at which the central bank lends money to banks, by 25 basis point, keeping the benign inflationary situation in mind and the requirement to push growth in a slowing global economy. However, banks are yet to respond with a cut in their MCLR. In an interview, HDFC Bank CEO Aditya Puri said that lending rates can't come down unless deposit rates brought down. Worth mentioning here is deposits are not growing at the same rate at which loans are growing due to which banks are finding it difficult to cut deposit rate. As against a credit growth of 9.3%, bank deposits have been growing at only 6.1%.

As per source report Puri told "Banks are finding it difficult on the funding side. Transmission of RBI’s rate cuts will depend on the time frame in which deposit rates go down. As long as there is scarcity of deposits, and banks raise deposit rates, they cannot bring down lending rates,".

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In the last quarter, many banks had increased deposit rates fearing that there will be a liquidity crunch in the system, due to which their MCLR has also become higher.  According to Puri, lenders are finding it difficult to mobilise deposits because of the rising cash in circulation and diversion of savings to mutual funds. Meanwhile, interest rate on small savings schemes like public provident fund (PPF), post office deposits continue to remain high giving investors an alternative to bank deposits.

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Puri says to bring down the cost of funds of banks without a reduction in deposit rates, the RBI will need to reduce the statutory liquidity ratio (SLR) or cash reserve ratio (CRR). RBI governor Shaktikanta Das Monday said he will meet top officials of state-run banks and private sector lenders later this month to discuss the issue of transmission of the central bank’s rate cut move to the wider economy.