Asserting that interest rates have bottomed out, Punjab National Bank Managing Director Sunil Mehta said treasury income of banks would see some pressure in the fourth quarter due to change in methods of calculating depreciation as well as additional Rs 50,000 crore borrowing by the government.
He, however, said the market is putting too much emphasis on the additional borrowing announced by the government last week and Rs 50,000 crore in entire scheme of things is a small amount.
The additional borrowing may not have much impact on fiscal deficit and the interest rate trajectory, he told PTI in an interview.
"In the fourth quarter there will be some pressure on the treasury income. It may be not as much as in the past because the treasury income is directly related to interest rate scenario. So the interest rate scenario, whenever it is a falling rate scenario the treasury income goes up.
"Whenever it is rising interest rate scenario because of the method of calculation of depreciation etc...provisioning requirement is only a book entry and not a outflow from system. Even for NPA it is book entry...so tomorrow when assets are revised back, we get our money back," he said.
Meanwhile, the country's second largest public sector lender has raised interest rates on fixed deposits of select maturities by up to 1.25 per cent effective tomorrow.
Fixed deposit of maturity of 7-29 days will now earn 5.25 per cent from existing 4 per cent while 30-45 days interest rate will go up by 0.75 per cent to 5.25 per cent.
However, interest rate on term deposit with maturity of 91-179 days will be higher by 0.25 per cent to 6.25 per cent.
Asked if there is upward pressure on interest rates, he said, "Yes...I feel interest rate has already bottomed out. Maybe for a near future I don't find a higher upward movement in interest rate."
Explaining why banks would not go for immediate upward revision, Mehta said lenders can meet their short-term requirements by lowering their statutory liquidity ratio (SLR) holdings.
At the moment, he said, most of the banks are holding 8- 10 per cent more than the required 19.5 per cent in government securities.
"If demand will come from investment and that will require credit...for that banks will not be required to raise fresh deposits at very high rate. Rather, they can go for churning of their existing portfolio.
"So for lower investment rate they can go for the higher investment credit. Currently, we are putting money in investment because there is not much credit demand. Tomorrow when we get credit demand I will take it out from investments and put it in credit," he said.
SLR is the portion of the deposits banks have to mandatorily park in government securities.
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