That high interest yielding fixed deposit will soon be an instrument of the past. What started as a trickle, has now become a sector-wide phenomenon. Flooded with excess liquidity and poor credit demand, banks have started cutting deposit rates across maturities.
Andhra Bank and Bank of India today joined the list of banks that have cut deposit rates over the last few weeks. As liquidity remains ample, market watchers are now expecting lending rates to head lower, reports CNBC-TV18’s Gopika Gopakumar.
The country’s largest bank, State Bank of India (SBI) was the first to set the trend by cutting 1 to 3 year retail deposit rates by 25 bps to 8.75 percent. The lender followed this up by cutting short-term deposit rates cut by 100 bps.
Other banks were quick to take the cue. Both Bank of Baroda and Bank of India have cut their 1-2 yr deposit rates by 15 bps to 8.9 percent.
Andhra Bank today reduced rates on all deposits above 1 year maturity by up to 75 bps.
Oriental Bank of Commerce (OBC) has gone a step further by cutting not just its retail deposit rates, but also the rates on bulk deposits by 25-50 bps.
The country's second largest public sector lender, Punjab National Bank (PNB) announced a 25 bps cut in bulk deposit rates last month.
Market experts say with liquidity being plentiful and credit demand weak, lending rate cuts should not be too far way. The question of course is who will bite the bullet first?.
“As of now we have reduced the rates on the deposit side. We don’t have any plans of cutting base rate immediately. We did cut the base rate from 10.25 to 10.20 in March 2014. We will wait and watch. We do see banks cutting lending rates to 10.15 percent by private sector banks, also SBI. If it comes in the way of our business, we will look at it,” said VR Iyer, CMD, Bank of India.
As of now, Axis is the only bank to have reduced its base rate by 10 bps to 10.15 percent. Others say they are still waiting to see to see a persistent fall in inflation and signs of a pick up in corporate credit demand. Only then can consumers hope for lower borrowing costs.
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