The Hindu Business Line : IOB hikes deposit rates, but bankers see no trend

INDIAN Overseas Bank has announced an increase of 0.25 percentage points in its deposit rates — the second bank in the industry (after Bank of Baroda) to do so.

The revised rates for deposits for less than Rs 1 crore is 5 per cent for deposits up to 29 days, 5.5 per cent for 30 days to 90 days, 5.75 per cent for 91 days to 179 days, 6 per cent for 180 days to less than one year, 6.25 per cent for one year to less than three years and 6.5 per cent for three years and above, the bank has said in a statement.

For deposits of Rs 1 crore to less than Rs 10 crore placed for a period of 30 days to 179 days, the bank will pay an additional interest of 0.25 per cent over the above rates. Deposits received from senior citizens for deposits up to Rs 15 lakh will get an additional interest of one per cent over the above rates, the statement says.

The Chairman and Managing Director, Mr S.C. Gupta, told Business Line today that the bank, which had been a lender in the call money market, had become a borrower due to good growth in advances and investments.

He said that while it was true that the call money rates were soft and stable, and cheaper than deposits, "it is neither desirable nor feasible to depend upon call money". He said that the bank had planned for about Rs 400 crore of investments between now and the end of the year.

He said that the bank expected to get about Rs 500-600 crore of additional deposits in the remaining part of the current year. The deposit rate hike announced today, "will not affect our profitability, because we've already lined up deployment opportunities".

He said he written to all the 38 regional offices allocating the deposits each region had to mobilise. "Growth should not happen through select branches. We want more deposits from the public rather than from the institutions," he said.

Bankers, however, do not believe that there is a reversal in the trend of reducing deposit rates. They pointed out that Bank of Baroda had earlier dropped its deposit rates to lower levels than other banks. BoB's raising deposit rates only meant bringing the rates on par with other banks.

Asked for a reaction, Mr B. Vasanthan, Chairman and Managing Director of Andhra Bank, observed that the banks were flush with funds and are not exactly starved of deposits. Therefore, the banking industry in general would not need to raise its deposit rates to attract public money.

Echoing similar views, Mr S.S. Kohli, Chairman and Managing Director of Punjab National Bank, said that some banks may be looking at raising their deposit interest rates in the context of the possibility of a war against Iraq and the consequent firming up of securities yields. (In other words, the market prices of securities are falling and banks may not be willing to raise funds by liquidating their investments now).

Mr N Kantha Kumar, Executive Director, Canara Bank, also felt that BoB and IOB raising deposit rates did not mean a reversal in trends.

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IOB hikes deposit rates, but bankers see no trend