Banks in no hurry to cut deposit rates

Written by fe Bureau | Mumbai | Updated: Mar 16 2012, 09:25am hrs
Bankers are breathing easy with R48,000 crore of liquidity injected into the system by the Reserve Bank of India (RBI). However, despite somewhat improved liquidity conditions, they believe it may take a while before lending rates start trending down.

MD Mallya, CMD says that banks would need to feel a tad more comfortable with the liquidity situation before they can drop deposit rates. Its hard to predict when money will become cheaper but only when deposit rates come down can we think of bringing down loan rates, Mallya said.

State Bank of India chairman Pratip Chaudhuri says that lending rates could start trending down sometime in April, though it would depend on the amount of liquidity in the system and the extent of government borrowings. When the supply of money increases, rates will come down, Chaudhuri said. Last Friday, the central bank had cut the cash reserve ratio the share of deposits that banks have to set aside by 75 bps to 4.75%.

MV Tanksale of Central Bank of India said, The basic concern of liquidity was addressed last week but perhaps there was no room for a repo-rate cut. And its possible there may be no cut even in the April policy if the concerns of inflation are not addressed. Indeed, bankers are not surprised with the RBIs move to hold back on rates.

While credit growth had remained sluggish at around 15%, there has been some pick up over a past few weeks. Nonetheless, deposit and lending rates are expected to remain at the present levels till RBI initiates measures to cut repo rates, said M Narendra, CMD, Indian Overseas Bank. Narendra added that the short term money market rates are expected to hold at the present levels with market facing some liquidity pressure till March-end.

Shyam Srinivasan, Federal Bank MD & CEO, believes that weak domestic demand and a higher base effect, will see core inflation moderate further in 2012-13. This would provide room to RBI to cut rates and boost growth. We expect a 150-basis point cut in the repo rate in FY-13, Srinivasan said.

RBI on Thursday observed that though future actions are towards lowering rates, the inflation risks remain, which will influence both the timing and magnitude of future rate actions.