Base rate cut not to crimp margins: Bank of India

In spite of a 0.25 per cent cut in the base rate, state-run Bank of India (BoI) is confident of meeting its net interest margin (NIM) targets as it expects a pick-up in credit and some benefit accruing from a fall in cost of funds, a top official has said.

"Some squeeze on the margins is inevitable but I think a combination of two factors--a reduction in the cost of funds lately and a likely pick up in the credit as the conditions in the economy improve--will help us meet our targeted margin," said V R Iyer, chairperson and managing director of the bank.

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BoI, which was the first to cut its minimum rate of lending or the base rate by 0.25 per cent after a finance ministry diktat last week, is targeting to take domestic NIM up to 3.10 per cent for FY14 from previous year's 3 per cent.

During a meeting with the chief executives of the state-run banks earlier this month in the capital, Finance Minister P Chidambaram had called for the need to cut high interest rates, saying this will help boost growth.

Bank of India's announcement to cut rates, which was surprising given that there were no definite signals from the monetary authorities preceding it, led to a dash among state run peers, including Oriental Bank of Commerce, Canara Bank and Union Bank, to announce similar moves.

Mr Iyer said the reduction in interest rate will help in credit picking up in the retail and small businesses segment, and added the field staff is already reporting a jump in enquiries.

Specifically, she said the home loan borrowers will benefit the most from the rate cut move.

The Bank of India chief said given the weak data releases last week on the industrial production, exports and consumer price inflation, and it is unlikely that the Reserve Bank will go in for any rate cut at its forthcoming policy announcement on July 30. "It will be status quo from the RBI," she said.

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