Banks slash deposit rates, lending rates may follow

The interest rate on one-year FD is now at 7.0 per cent compared to 7.15 per cent earlier. The proposed rates of interest will be applicable to fresh deposits and renewals of maturing deposits.

As banks are flush with deposits in the wake of demonetisation of Rs 500 and Rs 1,000 notes, deposit rates have started going southward. Leading banks, including State Bank of India, ICICI Bank and HDFC Bank, have cut deposit rates by up to 25 basis points as the system is awash with liquidity. Bankers and analysts are expecting a 25-50 basis points reduction in Repo rate by the Reserve Bank of India (RBI) in the monetary policy review.
The fall in deposit rates and a possible rate cut by the RBI will lead to a fall in lending rates in December, analysts said. “Banks may not even wait for the RBI to cut Repo rate. They might slash lending rates in the coming days before the RBI policy. People are queueing up to deposit cash, which in turn is putting pressure on rates. On the other hand, credit offtake is yet to pick up,” said an official of a nationalised bank.

According to ICICI Bank, for fixed deposit between 390 days to 2 years, the interest rate has been lowered by 0.15 per cent effective Wednesday. It will pay 7.10 per cent as against 7.25 per cent earlier. HDFC Bank has reduced interest rate by 0.25 per cent across all tenures on bulk deposits ranging between Rs 1-5 crore. With the revised interest rates, the one-year fixed deposit will attract an interest rate of 6.75 per cent as against the 7 per cent earlier. For fixed deposits between ‘3 years 1 day-5 years’, the rate has been lowered to 6.5 per cent from 6.75 per cent.
SBI slashed the interest rate on its fixed deposits on select maturities by up to 15 bps. Term deposit rate for one year to 455 days has been reduced by 15 bps to 6.90 per cent from 7.05 per cent effective on Thursday. Besides, interest on FDs for 456 days to less than 2 years also gets cheaper to 6.95 per cent from 7.10 per cent.
The interest rate on one-year FD is now at 7.0 per cent compared to 7.15 per cent earlier. The proposed rates of interest will be applicable to fresh deposits and renewals of maturing deposits.
Kotak Mahindra Bank has reduced the interest rate on one-year FDs by 25 bps to 7 per cent, lower than 7.05 per cent offered by SBI. Kotak has also reduced rates on two- and three-year deposits by 50 bps each to 6.75 per cent. Private lender Axis Bank has cut marginal cost of fund-based lending rate (MCLR) by 0.15-0.20 per cent.
According to estimates, banks have collected cash deposits of over Rs 4 lakh crore following the demonetisation decision announced on November 8 by Prime Minister Narendra Modi. SBI alone collected Rs 1.14 lakh crore till Wednesday.
With inflation remaining benign and industrial production stagnating, analysts are now betting on a rate cut. “Alongside the liquidity boost, the banknote reform might depress near-term price pressures. This adds to the already favourable inflationary trend, suggesting another rate cut is on the anvil,” said Radhika Rao, Economist, DBS Bank.

-Indian Express