IDBI chief sees short-term liquidity pressure

Competition for deposits is seen intensifying. In an attempt to garner greater share of savings, more banks are expected to increase deposits rates.

Industrial Development Bank of India (IDBI) chairman V P Shetty said banks will face liquidity pressures over the medium term partly because of the government borrowing programme and also the deposits base has plateaued with the rate of growth shrinking. This will result in a 10 to 25 basis points increase in deposit rates across the banking industry, said Shetty.

Intense competition for funds has already seen deposit rates being increased. Housing Development Finance Corporation (HDFC) and Central Bank of India last week took the lead in declaring higher interest rates on longer-term deposits of over 3 years.

HDFC hiked its deposit rates by 25-50 basis points. The rise in deposits rates for HDFC was the first in seven year. Central Bank of India increased longer-term deposit rates by 50 basis points.

On IDBI's expansion plan, Shetty said the bank's officials are surveying various countries for launching banking operations overseas. Overseas presence will also help IDBI save on withholding tax, which it is required to pay now when it raises funds abroad.

IDBI will open 150 branches every year from 2006-07 onwards to expand its branch to 500 by March 2008. On IDBI's entry into insurance, Shetty said the bank will take a decision in three months.

The bank will also decide whether it will set up a joint venture with a foreign partner for foraying into insurance.