The Hindu Business Line : Banks lower bulk deposit rates

Mumbai, July 4 Banks have started lowering bulk deposit rates (typically Rs 15 lakh and above). According to bank officials, some have even slashed it by 2 percentage points and may lower it further.

Mr J. Moses Harding, Head-Wholesale banking, IndusInd Bank, said: “For instance, in March-April, for a one-year wholesale term deposit, the interest rate was around 11.5-12.5 per cent but around May-June the rates have dropped by almost 2 per cent to below 10 per cent.”

Banks are also reported to be enjoying comfortable liquidity with call rates ruling at about 1 per cent. Wholesale deposit rate peaked as high as 12.5 per cent towards end of March. Bankers expecting sharp increase in corporate demand for funds, started offering higher rates. This had put pressure on their margins.

Mr P. Mukherjee, Senior Vice-President-Treasury, UTI Bank, said: “There may be further softening of these wholesale term deposit rates by 50-100 basis points. The demand from corporates was high during March-April as they were building their balance sheets but now, there is not much demand.”

According to analysts, bulk deposits are a significant proportion of total deposits for mainly public sector banks. In the case of some public sector banks, wholesale term deposits comprise 25-35 per cent of their total deposits. But bankers are not sure if the trend of declining interest rates on bulk deposits will translate into similar downtrend in retail deposits or for that matter reflect in lending rates immediately.

A senior public sector bank official said, “In the immediate term, I do not see any chances of interest rates coming down because the competition among banks is very high. Banks will watch if another bank is reducing its rates.”

“However, if as predicted, the wholesale term deposit rates are slashed further and the RBI does not increase its short-term interest rates one can see banks thinking about their lending rates. But certainly the interest rates are unlikely to go up further,” he added

Competitive situation

Industry analysts feel that bank behaviour would be largely dictated by the emerging competitive situation.

“The main question arising in every banker’s mind will be: who is going to take the first initiative in the medium term to cut lending rates?,” claimed one analyst

“Ideally, I think banks may look at offering discounts on loans. For instance, HDFC’s “monsoon offer” has home loans up to Rs 50 lakh becoming eligible for a variable interest rate of 11 per cent per annum instead of 11.25 per cent. So, this kind of a model may attract banks in the medium term,” the analyst said.

Certainly for corporate clients, banks may not advertise their lending rates but with the drop in the cost of wholesale term deposits, they may be looking at lending to their big clients at reduced rates, the analyst added.

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