Bulk, retail deposit interest rates would go down first: Bankers

Chennai -  Welcoming the Reserve Bank of India’s (RBI) move to reduce the reverse purchase (repo) rate by 50 basis points and other features of the monetary policy unveiled Tuesday, bankers are of the view that the interest rates on bulk deposits would come down and there will be a time lag between reduction in interest rate on normal deposits and that on advances.

"The interest rate on bulk deposits will have to come down. There will be a time gap between reduction in deposit rates and the lending rates. The former will precede the latter,” Indian Overseas Bank (IOB) chairman and managing director M. Narendra told IANS.

Agreeing with him, City Union Bank's (CUB) chief financial officer and senior general manager S. Sundar told IANS: “The interest rate on bulk deposits is around 11 percent and this has to come down. One more welcome feature of the RBI’s policy is that it talks about bridging the gap between interest rates on retail and bulk deposits.”

Sundar said he expects the banks to reduce the interest on deposits by 50 basis points and that on advances by around 20 basis points.

Narendra, meanwhile, said banks with higher spread will have to reduce their margin.

Both the bankers agreed that the issues involved in reducing the interest rates on deposits will have to be studied in detail before any action is taken.

The competition for attracting savings is now greater due to the presence of different investment avenues and banks have to be cautious while taking a decision on bringing down their deposit rates, said Narendra.

According to him, the monetary policy is a bold move which would spur industrial investments.

“The RBI governor deserves all kudos for having crafted the annual monetary policy for 2012-13 with a blend of confidence to restart growth and caution to contain inflation,” he said.

The first cut in three years, that too with inflation moderating, should be able to accelerate investment and consumption demand. However, as future guidance, RBI has also indicated in advance that further cuts may not be easily forthcoming in view of the policy limitations to tackle extant suppressed inflation in the system, Narendra said.

The decision to waive fee on prepayment of floating rate home loans will be welcomed by a wide range of borrowers. The policy has also rightly raised the caution board on gold loans by non-banking entities to pre-empt any overheating, he added.