Union Bank India to review interest rates next month

Leading public sector lender Union Bank of India today said it will take a call on upward revision of interest rates next month.

"This (lending and deposit rates) we have to see when the base rate would be revisited in the month of October," Union Bank of India Chairman and Managing Director M V Nair said after signing an agreement with Indira Gandhi National Open University (IGNOU) here.

The statement assumes significance as RBI last week increased key short term policy rates by up to 50 basis points putting pressure banks to respond to rate hike.

As of now liquidity is in deficit mode and credit growth is likely to pick up from the next month, he said, adding that the pressure on interest rate will go up.

At the same time, deposit growth on annual basis is 14.5 per cent much lower than RBI's projection of 18 per cent.

Spelling out reasons for lower deposit growth, Nair said it could be because savers are earning negative returns due to high rate of inflation.

One year fixed deposit earns about 7 per cent while annual inflation for the month of August stood at 8.5 per cent. So, depositors are getting a negative return of 1.5 per cent or more on their fixed deposits.

In case, he said, deposit growth does not keep pace then naturally the deposit rates would go up, he said.

Last month, Union Bank of India had hiked lending and deposit rates by up to 1 per cent.

The bank had increased deposit rates by 0.25-1 per cent across maturities while it raised its Benchmark Prime Lending Rates (BPLR) by 0.5 per cent to 12.25 per cent from 11.75 per cent.

Asked about credit growth, Nair said that Union Bank of India expects 25 per cent growth in advances and Net Interest Margin of 3 per cent during the year.