Deposit rate cut by 3 banks may be precursor to cheaper lending

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Mumbai | Updated: December 05, 2014 5:55 AM

ICICI Bank's website showed that it has lowered it deposit rates for customers within the Rs 1-crore bracket...

At a time when most bankers have asserted that deposit rate cuts are necessary for trimming lending rates, IDBI Bank, HDFC Bank and ICICI Bank have reduced interest rates on retail fixed deposits of select maturities.

ICICI Bank’s website showed that it has lowered it deposit rates for customers within the Rs1-crore bracket, for maturities between 390 days and two years by 25 bps to 8.75%. The new rates are effective from November 28.

Another private sector lender, HDFC Bank, has trimmed its retail term deposit rates maturing between 46 days and one year by 25-50 bps, bringing them in the range of 7.75-8.75%, the bank website showed. These rates are effective from December 1.


Analysts said these rate cuts would lower the cost of deposits by around 10-15 bps. “This can be interpreted as a signal that these lenders are looking at cutting their base rates, which, however, are among the lowest in the industry,” an analyst at a US-based brokerage said. SBI, ICICI Bank and HDFC Bank have their base rates at 10%.

Public sector lender IDBI Bank said on Thursday that it has cut its deposit rates in select maturities ranging between 15bps and 30 bps. Effective December 1, the bank would pay interest in the range of 4.5-8.85% for fixed deposits maturing between 15 and 30 days, and 6 months, two days and less than one year, respectively.

Analysts said in case there is a base rate cut, going ahead, it will affect the net interest margin (NIM) of banks and that a 10-bps cut in base rate would lower their NIM by 7-8 bps.

Public sector banks like State Bank of India, Punjab National Bank, Bank of Baroda and Oriental Bank of Commerce have also cut their term deposit rates, citing excess liquidity and inadequate demand for credit. SBI, for instance, has cut its fixed deposit rates thrice in the last four months.

In an email reply to a questionnaire sent by FE, an ICICI Bank spokesperson said, “ICICI Bank has reduced rates in select tenures of retail deposits given the improving liquidity environment and systemic trends.”

After RBI presented its bimonthly policy on Tuesday, bankers said lending rates would follow a downward trajectory in the first half of CY15. SBI chairman Arundhati Bhattacharya had told a news channel that as the deposit rates trend downwards, cuts in the base rates would be evident.

RBI data showed that while deposits grew 12.16% y-o-y to Rs 82.53 lakh crore for the fortnight ended November 14, non-food credit — or loans given by banks to companies and individuals — grew at a a subdued 11.16% y-o-y.

A Kotak Institutional Equities report had pointed out last month that private banks have steadily shown improvement in their Casa market share from 14.5% in FY05 to 20.2% in FY13. The report added that in the same period, PSBs’ Casa, which stood at 49% in FY05, dipped to 45.1% in FY13.

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