Banks to take call on fixed deposit rates after policy review

Mid-size public sector banks would wait till the mid-term policy review by the Reserve Bank of India before taking a call on reducing interest rates on fixed deposits, top officials said today.

"We will take a call on the reduction of deposit rates after the mid-term policy," Executive Director of Vijaya Bank, Subhalakshmi Panse told PTI today.

She said that the entire cost structure and overall deposit growth would be taken into account before reducing rates on fixed deposits.

Interestingly, deposit growth registered by Indian banking system fell short of RBI's target last financial year amid liquidity crunch faced by the lenders.

Last fiscal, banks' deposits grew 13.4 per cent to Rs 60.72 trillion in the year to March 23, below the RBI's projection of 17 per cent.

Country's largest lender, the State Bank of India, recently reduced fixed deposit rates by 0.25 percent in tenors upto 240 days.

Bankers said that mid-term policy review on June 18 will bring clarity on the cost structure of the banks and help them take a decision on FD rates.

"Basically, it depends on the fund management position of different banks," General Manager (Financial Management, IRC, Treasury & ID) of Dena Bank, Sudhir Kumar Jain said.

He also said that banks would factor in the availability of funds before deciding on reducing deposit rates. Central Bank of India's chairman and managing director M V Tanksale and Corporation Bank's CMD Ajai Kumar had also opined that they would wait for the RBI move on June 18 to take a final call on their deposit rates. An analyst with Angel Broking said banks were unlikely to take a call on fixed deposit rates till there was an improvement in the liquidity situation.

"As most of the fixed deposit rates are of one year or more than one year tenor, the reduction by SBI is not indicative of a trend. I expect that banks will not reduce fixed deposit rates until liquidity situation improves in the system," VP-Research of Angel Broking, Vaibhav Agrawal said.

Presently, liquidity deficit in the system is hovering around Rs l lakh crore, much above the RBI's comfort level of around Rs 60,000 crore.