Union Bank may raise deposit rates in Oct

Public sector lender Union Bank of India may raise deposit rates next month if its mobilisation is slow, amidst expectations of a further liquidity crunch in the coming days.

"We have recently hiked deposit rates. We need to see how growth in deposits takes place. In case the deposits do not go up, we may have to raise deposit rates," M V Nair, chairman and managing director of Union Bank said on the sideline of Ficci Banking Conclave here today.

Nair said that there was a possibility that liquidity would come under pressure in coming days due to recent credit outgo on account of advance tax payments and expected rise in disbursements in the coming the festive season.

This apart, in the present quarter redemption of government bonds would not take place, which was there in the last two quarters, said Nair.

In the mid-quarter monetary policy review, RBI had said if bank credit was not to become a constraint to growth, real rates needed to move in the direction of encouraging bank deposits. "On account of inflation, savers are getting negative returns on their deposits and hence deposit growth is not happening. Going by RBI's indication of a positive return to savers, if this trend continues, deposit rates have to go up," said Nair.

Close to Rs 40,000 crore has drained out of the the banking system due to advance tax payments. "Till last week, on a year-on-year basis, our credit and deposits grew by 23 percent and 21 per cent respectively, which is higher than the industry average of 19.5 percent growth in credit and 14.5 per cent growth in deposits,” he said.

The bank expects 25 per cent loan growth and 22 per cent deposit growth in the present fiscal. The bank expects that net interest income would be the key driver to profitability in the July-Sept quarter and the lender expects a net interest margin in excess of 3 per cent. This apart, Nair said, Union Bank of India was planning to launch wealth management services, after its mutual fund business takes off.