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| Lending, deposit rates may not change for now | |
| MID-TERM MONETARY POLICY 2008-09/ Policy & The Individual | | BS Reporter / Mumbai October 25, 2008, 0:51 IST | |
Banks non-committal about impact, adopt a wait-and-watch policy.
After injecting Rs 1,00,000 crore of liquidity through a cut in the Cash Reserve Ratio (CRR) in the last ten days, the Reserve Bank of India (RBI), in its mid-term review of the annual policy, kept things simple — no more cuts in any rates. CRR is a percentage of the deposits that banks have to keep with RBI.
For investors in bank fixed deposits, it could mean good news, at least for some more time. Banks, which have been trying to attract funds, may not immediately cut deposit rates. At present, most banks are offering 10-10.75 per cent for deposits between one and two years. “Banks are still competing to raise the resources, so deposit rates have seen an upward movement,” said K R Kamath, chairman and managing director, Andhra Bank.
According to M S Sundara Rajan, chairman, Indian Bank, though long-term interest rates (over five years) and short-term (3-6 months) interest rates have come down, medium-term rates (1 year) are still holding firm. “We will have to wait for some more time before any significant changes occur,” added Sundara Rajan.
No immediate change in deposit rates also implies that the lending rates are likely to stay high. “As long as the cost of funds remains high, it is tough to reduce lending rates,” added Kamath. Most bankers felt that while the repo rate cut is a signal for them to pass on the advantage to consumers, it can happen only gradually.
“Banks will have to wait for large-size deposit rates to settle. It will take 1-2 months to pass the benefit of lower cost to consumers,” said B A Prabhakar, executive director, Bank of Baroda.
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