Taking a cue from the Reserve Bank of India (RBI), banks are expected to keep interest rates unchanged till at least the next review of monetary policy on January 25.
Many banks had raised both lending and deposit rates last week. They plan to wait till further action by RBI, say bankers. Banks raised rates to tide over the liquidity crunch. The base rate, the reference rate for all loans, was raised later. With RBI saying it would infuse liquidity of Rs 48,000 crore in a month, and Thursday’s cut in the statutory liquidity ratio, bankers said another rise in deposit rates might not be needed.
“We will take a call after the next policy. The liquidity situation will drive deposit rates. In this policy, RBI has taken steps to ease the liquidity pressure, but the situation will improve only if the government starts spending,” said Bank of India Executive Director B A Prabhakar.
Punjab National Bank, Bank of India, Bank of Baroda and IDBI Bank are among those which have raised their base rate by 25-50 basis points in the past fortnight. Some large banks such as State Bank of India, ICICI Bank, Union Bank of India and HDFC Bank have not changed their base rate in December. Union Bank of India, which has not raised the base rate recently, may do so now.
“Thursday’s measures have been comforting. The upward pressure on rates will now subside. We don’t see the base rate as well as deposit rates going up in the next quarter. Banks have increased their deposit rates over the last one week and we expect mobilisation to pick up in the coming months,” said Bank of Baroda Executive Director R K Bakshi.
Banks raised deposit rates by 25-175 basis points across various maturities over the past fortnight, as investors were putting money in alternative asset classes such as equity and gold, which offered attractive returns.
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“Unless RBI increases rates significantly, there is no trigger for banks to raise lending and deposit rates in the next quarter. If liquidity eases in the coming months, RBI will have the room to raise rates,” said IDBI Bank Chief Financial Officer P Sitaram.
Credit growth has been robust this financial year. Bank executives expect the demand for credit to further rise in the last quarter. Liquidity in the system has remained in deficit and above RBI’s comfort level, mainly due to large government cash balances of around Rs 84,000 crore. Banks, on an average, have been borrowing Rs 1,01,000 crore from the repo window.
“We will have to wait and watch how government spending and OMOs (open market operations) pan out. Panic will reduce provided OMOs run steadily. Rates will hold steady. The base rate completely depends on deposits, which in turn depend on liquidity,” said YES Bank’s Chief Financial Officer Rajat Monga.
Union Finance Secretary Ashok Chawla said the liquidity injection would keep loan rates under check.