No scope to reduce deposit rates: Allahabad Bank CMD

Public sector Allahabad Bank does not see much scope for reducing interest rates on deposits as high rates on government’s small savings scheme, along with rising yields on government securities (G-secs), are putting pressure on the bank’s ability to mobilise deposits.

“If we further reduce interest rates on deposits, mobilising deposits and savings might be a problem. G-secs have also crossed 7 per cent, government savings schemes are giving about 8 per cent interest. So, it will be a challenge for banks to mobilise deposits, and we have limitations in reducing deposits rates,” Allahabad Bank Chairman and Managing Director K R Kamath said at the Ficci Banking Conclave in Kolkata today.

 

Last month, Allahabad Bank had reduced interest rate on deposits to 8 per cent for 800 days of term deposits below Rs 1 crore. It was offering 8.5 per cent for 850 days in the same bracket.

When asked if Allahabad Bank was planning to reduce the prime lending rate, Kamath said, “Nothing has been decided on PLR, but it was supposed to be balanced with deposits rate.”

Instead of giving so much importance to PLR, there should be a floor rate beyond which banks would not be able to lend, he said. “The importance of PLR has reduced, with customers having large bargaining powers as they get loans at sub-PLR rate, which was being cross-subsidised by those having less bargaining power,” said Kamath.

Allahabad Bank brought down its sub-PLR lending to 64 per cent in 2008-09 (71.8 per cent in 2007-08). The bank’s PLR advances increased to 19 per cent in 2008-09 (12.48 per cent).

Echoing similar views, United Bank of India CMD S C Gupta had earlier said the government’s large borrowing programme and high interest rate on government savings schemes were likely to put pressure on banks’ ability to reduce lending rates.