Repo rate rise may make deposits more attractive

The Reserve Bank of India’s (RBI’s) move to raise key policy rates may cheer depositors.

As a result of the increase in the repo rate, corporate bulk deposit rates are likely to rise further. Bulk deposit rates had risen as much as 125 basis points in June, surpassing retail deposit rates, but this was seen as temporary, a result of money flowing out of the system due to advance tax and 3G auction payments.

However, with the repo rate rising, the increase in bulk deposit rates will be more permanent, say bankers. “As a result, both short-term borrowing and short-term lending will become expensive,” said T Y Prabhu, chairman and managing director of Oriental Bank of Commerce.

M D Mallya, chairman and managing director of Bank of Baroda, says on Friday’s rate hike by RBI may not trigger an immediate increase in lending rates. “AN Increase in deposit rates may be a possibility”.

SBI Chairman O P Bhatt said earlier this week that the bank would take a call on raising deposit rates after the first quarter review of the monetary policy on July 27. The central bank has made it clear that it wants interest rates to rise to tackle rising prices and to give better returns to savers. “We have to give better return to savers. The credit growth is higher, inflation is picking up, and so we have to curtail credit demand,” RBI Deputy Governor K C Chakrabarty said on Friday.

Between April 1 and June 18, banks raised Rs 24,715 crore deposits, way below than in the comparable period of last year, which was Rs 1, 31, 354 crore.

Deposit growth in 12 months ended June 18 was 13.9 per cent, much less than the central bank’s projected 18 per cent.