Union Bank sees deposit rates going up from October

"Right now there is about Rs.45,000 crore worth liquidity shortage and in the third quarter government security redemption would not happen as seen in the first two quarters creating further pressure on liquidity...so deposits have to keep up...if that doesn't happen, we would see rates going up," Nair told reporters at a banking conclave organised by industry lobby FICCI.

The deposit growth rate of the banking industry is currently 14.5 percent, well below  the Reserve Bank of India's projection of 18 percent for the fiscal (2010-11).

"On account of inflation, savers are getting negative returns on their deposits and hence deposit growth is not happening. Going by RBI's indication of a positive return to savers, if this trend continues, deposit rates have to go up," he said.

Nair said the bank would achieve 25 percent credit growth in the current fiscal, higher than projected industry growth of 20 percent, and 22 percent deposit growth.

"Our loans till last week has grown at 23 percent year-on- year while deposits have gone up by 21 percent," Nair said.