Banks have started to reduce short term corporate bulk deposit rates on the back of comfortable liquidity signalling downward bias in overall rate environment though retail deposit rates yet to see any major revisions. But with retail inflation falling to 6.46% in September - the lowest since government started releasing CPI data in 2012, banks see it as an opportunity to cut retail deposit rates also.
"Retail deposits are expected to come down in the near future. It may not happen immediately but my expectation is that by March 31 we can expect about a 50 basis point reduction in retail deposits as well. This because we haven't seen any growth in credit pick up and as a result of the tepid demand interest rates will have to soften now. And consequently even deposit rates will have to go down." MS Raghavan, Chairman & MD, IDBI Bank
ICICI Bank and Oriental Bank of Commerce has announces new rates for short term bulk deposits today, while Punjab National Bank had reduced the rate last Friday. Interest rates on such deposits have fallen by 25-50 bps in select maturities. Deposit of more than Rs 1 crore is considered as bulk deposits.
According to bankers, the revision in bulk deposit rates is mostly in the three-month category.
"We have taken the strategy of moderating the growth of deposits of Rs 1 crore and above to fund credit expansion. We will give retail depositors reasonable return above the inflation level," said KR Kamath, chairman and managing director, Punjab National Bank.
ICICI Bank, for example, is offering 8% for such deposits, for maturities between one month to four month. PNB is offering 8% for three month to nine month deposits and OBC is offering 8.5% for 91 days to 269 days.
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"There is a downward bias on the bulk deposit rates due to lack of credit demand though deposit growth has been stable. In addition, there are inflows from foreign institutional investors which has also helped the liquidity situation to improve," said the treasury head of a public sector bank.
According to latest data from RBI, year-on-year loan growth till 19 September was 9.7% which is slowest since June 2001. Loan growth was 17.6% during the comparable period of the same year.
Deposit growth, on the other hand, 13.4% during the same period which is almost same as that of last year.
Since the start of September, foreign investors have pumped in $ 4.5 billion in both debt and equity markets which has eased the liquidity situation. According to RBI data, liquidity support from RBI to banks has fallen to Rs 45,000 crore in September from a high of Rs 87,000 crore in July.
Though bulk deposits have come down, banks are still holding on to retail deposit rate as retail inflation stayed high.
However, according to data released by the government today, consumer price inflation eased to 6.46% in September which is its lowest level since the government started releasing the data in 2012. The revised CPI numbers for August was 7.73%.
Bankers had been maintaining in order to give retail depositors positive return, that is offering interest more than annual inflation, deposit rates are not been revised. Barring State Bank of India (SBI) - which reduced retail deposit rates by 25 bps in early October, no banks had reduced the rates.
"CPI inflation has fallen in September, but we need to see if it sustains. If CPI inflation consistently stays below a particular level then we may review retail deposit rates," PNB's Kamath said.
But today, lower CPI inflation figures will provide banks scope to cut retail deposit rates.