State-run IDBI Bank expects interest rates, both on deposits and advances, to increase from the third quarter of the present financial year.
Huge government borrowing programme, along with expected demand push from the corporate sector in the third quarter, would lead to the interest rates increase, said Yogesh Agarwal, Chairman and Managing Director, IDBI Bank, at a Ficci Banking Conclave in Kolkata on Friday.
“As part of the interest rate cycle, we have seen that in the past few months the interest rates have softened. The situation is now going to turn as in the third quarter, when the corporate demand picks up, one should be ready for higher interest rates,” added Agarwal.
The Union Budget 2009-10 had pegged the government’s gross market borrowing for the current fiscal at Rs 4.51 lakh crore.
The benchmark prime lending rate of IDBI at present is 12.75 per cent. Agarwal said, there was not much scope to reduce the PLR further, as consumer price index was still hovering around nine per cent.
“Huge fiscal deficit is a valid concern, but the government is yet to come out with how the proposed market borrowing is financed. The Budget did not spell the roadmap of the proposed market borrowing plan. There are many ways in which it can be done, like, private placement of bonds, open market operations and disinvestment,” he shared.
