Banks are likely to bring down their lending rates further by at least 50 basis points (bps) after they reduce rates on their term deposits by 0.5 to 0.75 per cent, while the Reserve Bank of India (RBI) is likely to revise its growth and credit estimates in its upcoming credit policy announcement.

This was revealed by senior bankers who attended the meeting with RBI governor D Subbarao on Wednesday ahead of the annual monetary policy statement.

However, bankers across the board expressed their difficulty in bringing down their rates as lower prime lending rates are eating into margins. They also alerted the central bank about the rising levels of non-performing assets (NPAs) in the system.

“There is surplus liquidity in the system, which would result in deposit rates dropping by 50 to 75 basis points. Subsequently, lending rates could come down by another 50 basis points over the next three to four weeks.

Further monetary easing is not going to help banks bring down the cost of funds. There is also a possibility of RBI revising its estimates on growth and credit,” BoI chairman TS Narayanasami, who is also the chairman of Indian Banks’ Association, said after the bankers’ meet with RBI.

RBI may also revise its credit growth target downwards to 20 per cent in new financial year from 24 per cent that it had set for banks last year after bankers expressed fears on the rising levels of NPAs in the system. The banks also expressed their difficulty in bringing down lending rates because of higher cost of funds.

“Credit growth targets may be revised downwards and the central bank may take a serious look at NPAs of the system because banks have voiced their concern on the deterioration of asset quality on the back of a slowing economy,” said KC Chakrabarthy, chairman of PNB, who attended the meeting.

At present, the prime lending rates (PLR is the rate at which banks lend to their prime customers) of most banks are at 12 per cent, except for SBI, for which the PLR stands at 12.25 per cent.

The PLR of PNB is pegged at 11.5 per cent. For most banks, the deposit rates range between 7.5 to 8.5 per cent.

In the third quarter review of the credit policy, RBI had stated that the present deposit and lending rates have significant room for further reduction.

The union government has been maintaining that only a surge in domestic credit can put the economy back on the rails.

For this goal, banks have been consistently asked to reduce their lending rates, so the demand for credit can pick up particularly for the interest rate-sensitive sectors such as retail loans, particularly home and car loans and other secured loans.