Banks may not cut deposit rates till liquidity stabilises

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SummaryBoth private and public sector banks have expressed concern over the slackening pace of deposit growth with bankers unwilling to cut deposit rates till the time liquidity conditions stabilise.

Both private and public sector banks have expressed concern over the slackening pace of deposit growth with bankers unwilling to cut deposit rates till the time liquidity conditions stabilise.

“As of now liquidity is tight. Money supply has not grown in line with what RBI had said earlier,” said Aditya Puri, MD and CEO of HDFC Bank. HDFC Bank’s interest rate for fixed deposits of over one year is 8.75%.

Bankers said after bringing down deposit rates significantly in last few months to lower the cost of funding, they will pause since rates on deposits were competing with products like post office savings.

“The fact that deposit growth is low is because current account deposits aren't growing. It is unlikely any bank would cut deposit rates,” said Shyam Srinivasan, Federal Bank’s MD and CEO.

Even State Bank of India, which is sitting on excess liquidity, does not want to change its deposit rates till RBI cuts interest rates.

“There is no change in the Reserve Bank of India’s stance, so I would think there would be no change in our deposit or lending rates. Things are just as they were before,” Pratip Chaudhuri, CMD of State Bank of India, told a channel.

The banking sector's deposit growth hit a nine-year low in the fortnight ended November 30, growing 12.76% y-o-y.

The last time deposit growth dipped below 13% was in December 2003. RBI has projected a deposit growth of 15% for banks for the current financial year. “Deposit growth is not enough to outpace the credit growth and till the time that happens, banks cannot reduce deposit rates further. Higher inflation is also eating into people's savings, so we have to give them some benefit by way of higher deposit rates," said SL Bansal, CMD, Oriental Bank of Commerce.

Banks have borrowed as much as R1,46,290 crore under Reserve Bank of India’s (RBI) daily Liquidity Adjustment Facility (LAF) on Monday, the highest this financial year.

Non-food credit grew 16.76% on year to an outstanding of R48,51,275 crore in the fortnight ended November 30, according to the latest data from RBI.

Reserve Bank of India in latest mid-quarter policy review said liquidity conditions have remained tight in the third quarter due to large government balances with the central bank and the widening wedge between deposit and credit growth.

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