ICICI Bank, the largest private sector lender in the country, has slashed interest rates on retail term deposits by 50 basis points. The revised rates are with effect from Tuesday, the private lender said on its website.
The bank has cut rates across maturities ranging from 91 days to less than five years. It now offers a maximum 8.75 per cent interest on retail term deposits compared to 9.25 per cent earlier. In the shorter tenure ranging between seven days to 45 days, however, the bank has increased rate by 50-75 basis points.
ICICI Bank also became the first private lender and second bank in the country to cut retail term deposit rates this month. Last week, State Bank of India (SBI), the largest commercial bank in the country had pared its deposit rates by 50-100 basis points.
The move did not come as a surprise as industry analysts and bankers have been expecting lenders to reduce their deposit rates to protect dilution in their interest margins. They expect other state-run and private banks to mirror this move.
The net interest margin of banks has been under stress as the increase in cost of deposits has outpaced the rise in yield on advances in the past one year. As loan demand has remained largely muted so far this year the pressure on the margins is expected to intensify further.
"It is only a matter of time before all banks reduce their rates since SBI has already done it. But the timing will vary from bank to bank," a chief financial officer of a mid-sized private bank in Mumbai had told Business Standard on Tuesday.
ICICI Bank was one of the few lenders that improved its net interest margin in the first three months of this financial year. In April-June, the bank's net interest margin improved by 40 basis points from a year ago to 3.01 per cent. On a sequential basis, however, the margin was flat.
"With respect to margins, while there is some uncertainty on the system interest rates and the trend in lending and deposit rates going forward, the bank would endeavor to achieve an overall margin of about 3.0 per cent for 2012-13 as compared to 2.73 per cent for 2011-12," a senior official of the bank had told investors after the bank's first quarter earnings announcement in July, 2012.