Banks may not change lending, deposit rates after MPC meet, say bankers

Many banks reworked their rates ahead of the October MPC meeting, data on their websites showed. These include changes in rates for fixed deposits and term deposits.

Private and public sector banks are unlikely to change their lending and deposit rates any time soon as many lenders have revised their rates over the past few weeks, leaving little headroom for further changes in the near future, bankers told Moneycontrol.

Additionally, the bankers said the Reserve Bank of India is expected to maintain status quo on interest rates at the three-day Monetary Policy Committee meeting that ends on October 6, which will have a near-negligible impact on rates.

N Kamakodi, managing director of City Union Bank, said the key rates of banks will remain unchanged.

"Expect the status quo on both deposit and lending rates of banks," Kamakodi said.

Shekhar Bhandari, president of global transaction banking at Kotak Mahindra Bank, said: “We are expecting the central bank to maintain a status quo. Hence, this will unlikely lead to banks changing their major rates soon."

Many banks reworked their rates ahead of the October MPC meeting, data on their websites showed. These include changes in rates for fixed deposits and term deposits.

Major banks that recently revised rates include HDFC Bank, Axis Bank, Bank of India, IDFC First Bank, Yes Bank, IDBI Bank, Karnataka Bank, IndusInd Bank, and Punjab & Sind Bank.

HDFC Bank reduced the interest rates on two special tenure fixed deposit schemes. Bank of India, IDFC First Bank and IndusInd Bank revised their rates on deposits below Rs 2 crore.

Axis Bank and IDBI Bank changed their term deposit rates and Kotak Mahindra Bank increased its FD rates in September 2023. It is unlikely then that banks will revisit and revise these rates after the MPC decision, bankers said.

"Banks are likely to work on their lending and deposit rates only after some movement is seen from the regulator," said a senior bank executive asking not to be identified.

Factors that led banks to change their rates in the past few weeks include the withdrawal of Rs 2,000 currency notes. Karthik Srinivasan, senior vice-president, group head - financial sector ratings, ICRA Ltd., said in June 2023 the withdrawal of the Rs 2,000 notes may ease pressure on deposit rates.

“The decision to withdraw Rs 2,000 notes led to deposit accretion. This eased the pressure on deposit rate hikes and could also result in a moderation in short-term interest rates,” Srinivasan said in a note.

Morgan Stanley too had said that the withdrawal of the currency notes boosted liquidity, which provided short-term respite for interest rates.

Investors and experts expect the MPC to opt for another rate pause on October 6, which would be the fourth in a row.

The RBI has kept the repo rate unchanged at 6.5 percent since February, when it was increased from 6.25 percent to 6.5 percent. The central bank has raised the repo rate by 250 basis points since May 2022.