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Banks are not planning a significant raise in deposit rates, as there is anticipation of improved liquidity due to inflows from non-resident Indians, among other things.
Recently, a private sector bank raised its one-year deposit rate to 10 per cent but this might not be an indicator of deposit rates touching double digits. Bankers said the wide gap between deposit growth and credit offtake, persistent for months, could narrow in the second half of this financial year.
They expect improvement in the pace of resource mobilisation on three counts, including NRI flows, from October. This would temper the need to raise deposit rates on term deposits for the retail side. The previous major revision in term deposit rates was by State Bank of India. It raised these by 100 basis points (bps) for deposits up to less than a year and 25 bps for those of a year and above.
Bankers say the flow of NRI deposits, especially Foreign Currency Non-Resident (Bank) deposits, will see higher inflows on the back of the currency hedge facility provided by banks. Besides, the decline in gold import due to severe curbs will mean the money which otherwise would have gone into buying the yellow metal will flow into banks. And, the better harvest on a good monsoon across country would bring more money into the hands of rural households.
A senior IDBI Bank executive said with many banks raising term deposit rates in August and September, the differences among these had narrowed. This trend would not change much unless some bank decided to turn aggressive. The funds would come but at a cost, of a hit on interest margins, as lending rates were unlikely to inch up.
Similarly a senior official of Corporation Bank does not expect more than a 25 bps upside movement in deposit rates from the current levels.
Earlier this week, Lakshmi Vilas Bank raised interest rates on one-year deposits by 50 bps to 10 per cent; for those above a year but less than two years, the rate has been revised to 9.50 per cent from the earlier 9.25 per cent.
The bank has also raised rates on deposits for more than two years and up to five years by 25 bps. “We increased the rates for our asset liability management adjustments. We want to reduce our dependence on short-term deposits and bring more stability in Net Interest Income,” said J Moses Harding, executive director and chief business officer. It was in the first quarter of 2012-13 that private banks were offering eight to 10 per cent on deposits with a one to three-year maturity.
According to Reserve Bank of India data, credit grew 18.1 per cent for the 12 months ended September 6 (16.6 per cent a year before) and deposits rose 13.4 per cent during the same period (14.5 per cent a year before). Banks will continue to mobilise more deposits from rural pockets.
“Compared to urban areas, rural pockets have limited investment alternatives. The penetration of mutual funds and stock investments is not deep. So, more money would get parked into deposits compared to the second half of 2012-13, though banks will compete for that pie,” said Vibha Batra, senior vice-president with rating agency Icra.
In the mid-quarter review of monetary policy, RBI raised its repo rate (at which it lends to banks) by 25 bps to 7.50 per cent. At the same time, the Marginal Standing Facility rate, currently the operative one, was reduced by 75 bps to 9.5 per cent.
