Your term deposits in banks will now earn lesser interest, thanks to rate cut by the Reserve Bank of India.
The 25 bps reduction in the Cash Reserve Ratio (the amount of funds commercial banks maintain with RBI) by the apex bank on Tuesday will ease the liquidity crunch based faced by banks in the recent past.
“The cost of funds will now come down and improved liquidity will lead to reduction in deposit rates,’’ Anjaneya Prasad, Executive Director, Syndicate Bank, told
Downward movement
“The rate cuts indicate downward movement in interest rates as this will bring about monetary easing,’’ Sanjay Arya, Executive Director of United Bank of India, said.
The interest on term deposits now go up to a maximum of 9 per cent depending on the amount and period of deposit with some variations from bank to bank.
Venkataraman, Managing Director, Karur Vysya Bank, said his bank recently reduced the interest rate on deposits and going with this move by the RBI, the rate would fall further.
A decision on reduction in lending rates/deposit rates will be taken by banks by asset-liability committee (ALCO) of each bank. So, there will be clarity on quantum of reduction in deposit rates in next couple of weeks.
Cost of funds
The cost of funds for many banks has come down in the third quarter of the current fiscal to a little over 6 per cent from about 7 per cent in the second quarter.
Though about Rs 18,000-crore liquidity will be injected to the market now due to RBI’s rate cut, there are doubts about sufficiency of liquidity going forward if there is a rise in demand for credit.
By March, liquidity might be tighter again, according to M. Bhagavantha Rao, Managing Director, State Bank of Hyderabad.
As such, the trajectory of deposit rates seem little uncertain in the long run as of now.
(With inputs from L N Revathy in Coimbatore)