The Hindu Business Line : Banks trim deposit rates

Depositors may have to scramble and quickly lock into the interest rates that some banks are currently offering. The window of opportunity may not last long as deposit rates are tumbling down.

Banks have started slashing rates on short-term funds for various periods of 15 days onwards to about one year. The amount of cuts varies from bank to bank and across different periods.

But it is clear that the deepest cuts have come in the very short term (15 days to 6 months).

The cuts range from 2.75 percentage points at the very short end to a more moderate 0.25 percentage point in the medium-term (beyond one year) deposits.

Cuts

The deep cuts in the very short term deposits happened probably because of the surplus liquidity that was floating in the system. When inter-bank borrowing rates (call rates) were hovering at below 1 per cent for the better part of the past two months, there was probably little need to continue offering between 3 per cent and 5 per cent for deposits of one month to 3 months.

Interestingly, the cuts in deposit rates started over fortnight ago — in fact, much before the Credit Policy review on July 31.

In the past, banks would be cautious about making any rate moves for almost a month before the policy. Enquiries on interest rates to various bank chairmen would almost always elicit the evasive, “wait for the policy” response.

That wasn’t the case this time. A number of banks, including Allahabad Bank, Punjab & Sind Bank, UCO Bank and Indian Bank besides a few private banks such as ING Vysya, UTI Bank and HDFC Bank took the plunge — some a few days ahead and in some cases a few weeks ahead – of the policy.

A few other banks such as United Bank, Corporation Bank, Indian Overseas Bank, Bank of Baroda, Canara Bank, Bank of India cut rates immediately after the policy review. State Bank of India followed suit today.

Not uni-directional

To be sure, the movement in rates has not entirely been uni-directional.

At least two banks, Oriental Bank and SBI, have increased their medium term rates.

OBC has increased its rates by between 0.70 percentage point and 1 percentage point across three time buckets.

SBI has increased rates by a quarter percentage point in the 6 months to 1 year time period and the above 5 year time period.