Bankers readying for rate cuts in term deposits

Mumbai, July 27 (UNI) With RBI quarterly review due on July 31, lenders are readying for a cut in interests on deposits, which has been necessiated by over liquidity in market and a visible slow down in credit margins.

While Union Bank of India (UBI) has already slashed its deposit rates by 50 basis points -- from 9.50 per cent to 9 per cent -- for maturity from one year to three years, other public lenders like Bank of Baroda (BOB), Dena Bank, Bank of India (BOI) and private banks ICICI and HDFC are also expected to trim rates, which may coincide with the policy review.

Soon after Union Bank revised its deposit rates, Dena Bank had also annonced this week that the rates would be revised after the policy review.

According to senior bankers, the hiked lending rates had a grave impact on lending margins during the quarter, from an average 31 per cent in Q4 of FY07 to 25-27 per cent in Q1, FY08. Lowered credit demand as well as excess liquidity is considered to be sufficient factors to slash rates, both credit and deposit side.

''We had a slow down in auto and home loans during the quarter owing to the rise in interst rates. However, a revision would be considered only after the RBI policy review'', said Vishaka Mulaye, ICICI Chief Financial Officer.

Rate hikes had attached a telling impact on the escalating margins of bad loans also. ICICI' had met a marginal rise in its net NPA ratio to 1.3 per cent from 0.98 per cent in previous quarter.

Other bankers also expressed similar views. ''Yes, considering the market trends, the interest rates should soften but not only in the credit side but also in deposit margins,'' said Anil K Khandewal, Chairman, BoB.

The inflation, which rose to 4.41 per cent for the week ended July 14 after remaining steady for two consecutive weeks at 4.27 per cent, and the excess liquidity still vivid in market may prompt the banking regulator for yet another hike in policy and reserve rates.

But few bankers chose to believe RBI is likely to keep the rates unchanged in the quarterly review considering the lower inflation margins.

''I don't think the regulator will come with further revisions in policy rates in the quarterly review. The main concern of the Reserve Bank was the higher inflation rates which is now at normal levels,'' said a senior banker.

On the other side, a cut in deposit rates by 50-75 basis points may not be taken well by individual depositors who depend on term interests.

UNI