Sharp cuts in lending rates to take some more time

New method of calculating the benchmark has already led to a reduction and now Reserve Bank of India's move will first spur a deposit rate cut

The new financial year has started on a good note for borrowers with, several banks cutting lending rates, thanks to adoption of the marginal cost of lending rate (MCLR). This led to a reduction in home, automobile and personal loan rates at many banks. The Reserve Bank of India's (RBI) repo cut along with other liquidity easing measures, is expected to encourage banks to cut further.

However, depositors banking on fixed deposits could be in for some disappointment, as banks are likely to cut deposit rates too. The high rates offered by small savings schemes was one reason for banks not cutting but with the reduction in those of small savings schemes, from April 1, an easing in bank deposit rates is likely.

After the RBI policy, State Bank of India chairman Arundhati Bhattacharya had said that deposit rates will need to come down further for meaningful transmission.

While some banks had started reducing bulk deposit rates, cuts in retail deposits are likely over the next month or so. (Click here for charts)