More public sector banks might cut deposit rates

Point to improved liquidity, slack credit growth to also base decisison on RBI mid-term review this month

Better liquidity has eased some pressure on deposit rates (DRs), especially in the short term, and some public sector banks (PSBs) might soon lower these.

State Bank of India (SBI), the country’s largest lender, has reduced its DR by up to 100 basis points (bps) following robust mobilisation in the current financial year, amid tepid credit offtake. Oriental Bank of Commerce, another PSB, has revised the retail DR by 15-50 bps with the improved liquidity conditions, said S L Bansal, chairman and managing director.

“The cost of funds are coming down. The liquidity situation has also improved. Short-term corporate deposit rates have softened by 75-100 bps over three months. For example, the rates on three-month certificates of deposit have fallen to 8.25-8.50 per cent from 9.5 per cent,” said Bansal.

Bank borrowing from the Liquidity Adjustment Facility, an indicator of system liquidity, is about Rs 35,000 crore daily, within the Reserve Bank of India’s comfort zone.

Bansal’s views were shared by his counterpart at Mumbai-based Dena bank, Nupur Mitra. “There is a downward bias on deposit rates because of the comfortable liquidity situation. Our Asset Liability Committee will meet shortly to take a view on these rates,” she said.

The downward pressure on DRs is also due to slack credit offtake. SBI, for example, saw deposit accretion of Rs 78,000 crore during April-September, while credit offtake was only Rs 20,000 crore. SBI had said the pipeline for loan growth, particularly large credit, was also rather dry. “That is why we thought we’d slightly go slow in deposit mobilisation, because it does not seem to be enough utilisation,” chairman Pratip Chaudhuri had said earlier this week.

In the financial year so far, deposit growth has been 6.5 per cent and credit grew 2.4 per cent, as on August 24, latest RBI data showed.

Some banks indicated they’d wait till RBI’s mid-quarter assessment to take a view on DRs. Syndicate Bank executive director M Anjaneya Prasad said they’d wait for till then to get a sense of the trend. At present, the bank is bringing down the cost of funds by focusing on raising the share of deposits in current and savings bank accounts. RBI will have its mid-quarter review on September 17 and there is a consensus that it would leave the policy rate unchanged, as inflation has continued to stay above its comfort level.

“We will wait for the policy announcement and there will be more clarity on the sustainability of liquidity post the advance tax outflows. It will also depend on competition,” said C R Rajendran, executive director, Bank of Maharashtra.