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Wednesday, April 6, 2011

Central Bank, OBC cut deposit rates

Central Bank of India and Oriental Bank of Commerce (OBC) have reduced their interest rates on term deposits. This is the first time in six months that banks have cut fixed deposit rates.

Central Bank’s peak deposit rate has now been revised to 9.25 per cent for a 555-day maturity from 9.60 per cent earlier. The bank has also reduced its interest rates on deposits of Rs 1 crore and above by up to 455 basis points. New Delhi-based OBC has also cut interest rates on deposits of more than Rs 1 crore by up to 100 basis points.

“We were offering 10 per cent on deposits of Rs 1 crore and above in a particular bucket for a brief period. This was because we wanted to keep our rates in sync with the market. Now, we have decided to revise the rate back to its previous level,” said Nagesh Pydah, chairman and managing director of OBC.

Since October, lenders have raised deposit rates aggressively, as they struggled to mobilise funds amid extended an period of tight liquidity. During this period, banks’ deposit rates have increased by 150-250 basis points.

Bankers feel deposit rates appear to have peaked and further raises were unlikely in the near to medium term. A senior official of Punjab National Bank (PNB) said deposit rates were likely to come down but PNB was yet to decide on reducing its deposit rates.

Some bankers and industry analysts, however, said term deposit rates across the industry were unlikely to soften in the near term.

According to Madan Sabnavis, chief economist with CARE Ratings, banks had raised interest rates on deposits to meet year-end targets and bridge asset-liability mismatches.

“One bank’s decision to cut term deposit rates should not be seen as the beginning of an industry trend. Overall environment is still not conducive for rate cuts due to high inflation and tightening of key policy rates by the Reserve Bank of India,” he said.

Source: Business Standard


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