Bank of Baroda cuts deposit rate by 25 bps

Peak fixed deposit rate falls below 9%

With liquidity conditions easing significantly in the new financial year, banks have started reducing deposit rates which will also lead to a reduction in the lending rates going forward.

Bank of Baroda – the second largest lender of the country -- today reduced interest rate on fixed deposits by 15-25 bps across various maturities. Following the reduction, the peak deposit rate of bank has fallen to 8.90% from 9.15%. This rate was offered for deposits of tenure of 1,111 days.

For deposits of 1 year to 3 years, the new interest rate will be 8.75%, as compared to 9% earlier. According to a senior official, BoB has seen robust growth in deposits which was higher than credit growth and the bank is having excess liquidity. “All these factors have prompted us to realign the deposit rate,” the official said.

Earlier this week, another large public sector lender Punjab National Bank has slashed the short term deposit rates (below 1 year) by 200 bps. Oriental Bank of Commerce has also cut the deposit rates by 25-50 bps on shorter tenures.

The liquidity situation has improved significantly in the current financial year which has prompted banks to cut the rates. Liquidity deficit in the system was more than Rs 1 lakh crore in March but has eased now with banks today borrowed around Rs 48,000 crore from the repo window of RBI. The central bank aims to contain the liquidity deficit within 1% of the banks’ net demand and time liabilities which is around Rs 67,000 crore.

Market participants expect further reduction in interest rates if the central bank lowers the key policy rate in the next policy review scheduled on 3 May. RBI had reduced the repo rate in two consecutive policies – in January and March – by 25 bps each.