The bank's board, which meets on January 19 to take into account the quarterly results, is expected to take a decision on slashing interest rates on term deposits.

Speaking to The Financial Express, ICICI Bank managing director and CEO HN Sinor said interest rates on term deposits will be reviewed and the revision will be announced this week. "The revision in interest rates on term deposits will be a graded one, though an across-the-board revision cannot be ruled out," Sinor said. Sinor said the first impact of the PPF and other saving scheme rate cuts will be on the deposit rates of banks. "We should witness a cut in deposit rates of banks in the coming days...My feeling is that the cut would be around 100 basis points," the ICICI Bank chief said, adding: "The government's decision to keep theinterest rates on PPF scheme fixed at a higher levels meant increased cost on deposits of banks".

The bank offers an interest rate of 10.5 per cent on a one year domestic term deposit and 11 per cent for the same maturity on non-resident deposits.ICICI Bank's move to cut term deposit rates is an exception as most commercial banks have ruled out reviewing the rates on the plea that interest rates on deposits are already lower than the returns offered by PPF and other small saving schemes.

Public sector banks are planning to adopt a wait and watch policy before taking any decision. Some of the senior bankers, contacted by The Financial Express, felt that the slash in PPF rates was a correction long over due and it would not trigger an immediate cut in banks' deposit and lending rates.

Bankers also felt in case the rates are lowered, there will be a flight deposits and mutual funds would eat into bank funds in a more aggressive way.The PPF rate is an administered one and its revision is guided to a largeextent by political considerations. In this context, the PPF rate cut is seen by bankers as being long overdue.The interest income on PPF is eligible for income tax exemption, while it is not the case with term deposits.

Bankers argue that though revision in small saving interest rates does impact the interest rate matrix in the economy, a direct link between this and deposit/lending rates is possible only when the government creates a level playing field by providing the same benefits on deposits which are available to investors in PPF."As long as interest rates on PPF is kept higher by the government with tax incentives provided to the investors, the scheme will continue to remain an attractive tax shelter," a top banker said.

It is for this reason that bankers have been arguing in favour of deregulating PPF and other saving scheme rates in line with other market-determined interest rates.