The Hindu Business Line : IndusInd Bank raises deposit rates; UTI Bank may follow suit

THE good news is that interest rates on deposits are finally starting to inch up. The bad news is that not all banks are prepared to pay more on deposits just yet.

The private sector IndusInd Bank is the first to announce a 10-25 basis point increase in its short-term deposits, with effect from October 28. The bank's decision to mark up deposit rates follows the 25 basis point hike in the repo rate announced by the Reserve Bank of India, in the mid-term review of the Annual Policy statement, last month.

UTI Bank is also planning to raise interest rates on its domestic term deposits across maturities, by around 15-20 basis points shortly, according to bank officials.

However, even as most banks have gone into huddles with their respective asset liability committees to decide on their stance on rates, a section of bankers feel that a deposit rate hike at this point would be a bit premature.

In fact, analysts are of the view, that leading public sector banks may wait a while before they touch interests rates on either the asset side or the liabilities side. Even if short-term deposit rates go up, it will be longer before the interest rates on the one year and above deposit categories start moving up, they said.

"Banks are in a rather awkward situation. On one hand, the RBI has raised the repo rate, which some see as a signal of higher interest rates. On the other hand, there are those who believe that since the bank rate was untouched, it is not a strong enough signal. Another problem is that lending rates cannot be raised, unless there are clear and visible signs of credit offtake," said an analyst.

One official with a leading public sector bank said, other things remaining equal, bigger banks are unlikely to touch lending and deposit rates in the immediate future. "Raising deposit rates at this time seems a little premature to us. It is possible that some smaller banks may want to mobilise funds for meeting their own liquidity requirements and that is why they want to attract deposits by offering higher rates. But we have no immediate plans to raise rates," the official said.

Another banker admitted that some banks are facing a liquidity crunch, as indicated by the tightness in the inter-bank call money market. Call rates surged to 5.20 per cent levels in the inter-bank market today, following heavy borrowing by banks, which were rushing to meet their CRR requirements.

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IndusInd Bank raises deposit rates; UTI Bank may follow suit