Deposit rate should moderate ahead: Bank of Baroda

The Reserve Bank of India (RBI), in its annual monetary policy for 2012-13, slashed the policy rates by 50 basis points.

In an interview to CNBC-TV18, RK Bakshi, executive director of Bank of Baroda says, if RBI’s M3 growth expectations are right then these deposit growth, lending growth should be right.

According to him, deposit rate should moderate ahead.

Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying video.

Q: The RBI is forecasting a 16% growth in deposits and a 17% growth in credit. Does that look like a tall order?

A: No, I think if their M3 growth expectations are right then these deposit growth, lending growth should be right. If you see March 31, March 23 and March 30 figures, the rates are more substantially. Even in this year at 19% and 17% in credit and deposit. So, I would not be surprised if 15% or 17% and they are quite consistent with the 7% GDP growth and 15% M3 growth.

Q: What is your sense? We heard this scare about deposit growth falling to 13.5%, banks don’t need the deposit so they will not be under pressure therefore to price the deposit high, and they will definitely see a fall in deposit.

A: So far as the deposit rates are competitive with other instruments of small savings that’s available in the industry and banks definitely offer an advantage in terms of convenience and in terms of add-on that come with the deposits for a customer. Therefore, if the rates are competitive, competitive doesn’t necessarily mean they are more or equal, they might be slightly less than that.

Nobody can say that deposits are not important, they are very important, particularly for the retail banks. We are retail banks, unlike some wholesale banks who depend a lot on CDs and money market instruments, we depend on retail deposits. But ultimately the pricing power for the loans is hugely dependent on moderating deposit cost also. Everything hinges on the middle point which is inflation rate or the policy rates which are based on the inflation rates. We are definitely doing that. If going forward progress has to happen, the deposit rate should moderate. That will definitely not put banks out of contention for deposits.