Senior citizens and those depending on interest income will have a tough time in 2009 as deposit rates, which have already declined by 100 basis points in the past one month, are expected to fall further.
Most banks, including the largest public-sector lender State Bank of India (SBI), has decided to cut the peak deposit rates by another 100 basis points from January 1.
SBI, which earlier paid interest at the rate of 10.5 per cent (11 per cent to senior citizens) in October, will slash its peak rates on fixed deposits to 8.5 per cent.
The other large state-owned lenders such as Bank of Baroda and Bank of India too have announced plans to cut deposit rates in the new year.
Deposit rates are expected to come down by another 200 basis points in the next six months as inflation has softened considerably, said a senior official of Oriental Bank of Commerce.
According to the Crisil Principal Economist D K Joshi, the declining inflation rate provides more leeway to the RBI to further slash interest rates. “I expect a 100 basis point cut in both the repo (short-term lending rate) and reverse repo (short-term borrowing) rates,” he said.
Empathising with the savers, Punjab National Bank Chairman and Managing Director K C Chakrabarty said, “We all forget that there is also a category called savers, and they are the worst sufferers when interest rate goes down. Collectively, 90 per cent of us are savers.”
Noting that only 2 per cent of the population invests in stock markets, he said the bulk of the people keep their surplus with the banks in the form of fixed deposits.
