Interest rates on deposits are likely to decline by up to 50 basis points as banks are looking at increasing margins.
The tepid demand for loans may lead to a reduction in deposit rates in the short term.
“There is a distinct possibility that banks may cut savings bank interest rates. The fact of the matter is if the whole interest rate structure comes down and you don’t cut the savings bank rate, your margins would be impacted,” said a senior private sector bank official said at a conference recently.
The banking system saw a slower year-on-year credit growth of 15.9 per cent (as on October 5) compared with 19.5 per cent. N.S. Venkatesh, Chief General Manager and Head of Treasury, IDBI Bank, said “Banks need to reduce their cost of borrowings as there is not much loan offtake. “If the Reserve bank of India cuts policy rates, then about 50-75 per cent of it will be factored in the deposit rates as well.”
To protect net interest margins, many banks including State Bank of India, ICICI Bank and HDFC Bank have already cut fixed deposit rates on retail term deposits across maturities. Ashish Parthasarthy, Head of Treasury, HDFC Bank said, “The deposit rates have stabilised as of now. However, if the credit growth remains weak, deposit rates may further fall as banks need to reduce their cost of funds.”
Bankers, however, are hopeful of credit pick up in the next two quarters.
In the reporting fortnight ended October 5, bank credit increased Rs 43,000 crore to Rs 48.09 lakh crore and deposits jumped Rs 1.21 lakh crore to Rs 64.11 lakh crore.
Liquidity comfortable
D Sampath, Head – Retail Banking, Federal Bank, “The liquidity position is comfortable. Though some steps are already in place to activate the economy, substantial demand for credit is not expected immediately.
“This, coupled with possible easing on the monetary policy front, could lead to a 25 to 50 basis points cut in deposit rates in the second half of the fiscal,” said