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Banks reduce deposit rates, say lending rates will decline

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In what could be a precursor to a cut in lending rates, Indian Bank and Uco Bank On Tuesday said they are reducing deposits rates. The decisions come within 24 hours of the home loan package offered by public sector banks.

 M S Sundara RajanChennai-based Indian Bank reduced interest rates of domestic term deposits of Rs 1-5 crore by 150-25 basis points across various maturities. “With inflation coming down, the cost of funds should also come down. Our focus remains on the core deposits (and) not bulk deposits. Hence, we have decided to cut interest rates for bulk deposits,” said Indian Bank Chairman and Managing Director M S Sundara Rajan. The reduction in deposit rates is effective from December 15.

In Kolkata, Uco Bank said it would lower interest rate on lending and deposits by January 2009. “It is time to reduce interest rate on deposits now as the rate of inflation is coming down. We will also take a call on reducing the lending rates by 100 basis points in January. The final decision regarding this would be taken in the asset-liability committee (Alco) meeting on December 26,” the bank’s Chairman and Managing Director S K Goel said.

T S NarayanasamiIndian Banks’ Association (IBA) Chairman T S Narayanasami expects interest rates to ease further by the end of the financial year. “Interest rates on both deposit and lending are expected to come down by 150 basis points by March 2009,” said Narayanasami, who is the chairman and managing director of Bank of India.

Goel said the interest rate on deposits for most banks may come down to 7-8 per cent by January. Bank of Baroda Executive Director R K Bakshi added that deposit rates across the banking industry are expected to fall by another 100 basis points in the next one week. “It will help bring down the cost of funds and this will create the capacity to reduce the lending rates thereafter,” he said.

Most public sector banks and private players such as HDFC Bank and HSBC had lowered deposit rates by at least 50 basis points at the start of December.

While the country’s largest lender, State Bank of India, has said that it may lower deposit and lending rates soon, the largest private sector player, ICICI Bank, too indicated over the weekend that rates may come down over the next two-three weeks.

Allahabad Bank and United Bank of India (UBI) said they will take a call on the lending and deposits rates in the coming weeks. “We have no immediate plan of reducing interest rate on deposits. But we will take a call. We are waiting for the inflation to further come down before reducing the interest rate on deposits,” said UBI Chairman and Managing Director S C Gupta.

“We have already reduced lending rates for housing and MSME (micro, small and medium enterprises). For reducing the interest rate on deposits, we will have to see if it is viable to reduce the rates at this point of time. It is a matter of getting deposits,” said Allahabad Bank Chairman and Managing Director K R Kamath.

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