There are no signs of banks reducing lending rates, yet they have started another round of deposit rate cuts. Bank of Baroda, on Monday, reduced the interest rate for deposits below ₹1 crore by 10 basis points for select maturity brackets. This follows the decision by Axis Bank to cut its deposit rates by 25 basis points in select slabs.
With 50 bps cut in the policy rate since January, corporate and individual borrowers have been clamouring for a reduction in lending rates. But so far most banks have only lowered the deposit rates.
Between December and January, SBI, ICICI Bank and HDFC Bank, among others, have cut deposit rates. Bankers have maintained that to pare lending rates, the deposit rates need to fall before banks can be comfortable in cutting lending rates.
“There is a lot of liquidity in the market and therefore deposit rates are being cut. Banks would prefer to wait for the April policy before taking a decision on lending rates,” said a top executive of a state-owned bank.
Bank of Baroda has decided to revise rates payable on domestic term deposits and NRO deposits of below ₹1 crore, applicable to fresh deposits and renewal, with effect from March 24, 2015.
“The applicable rate of interest in the maturity range of 181 to 270 days has been reduced from the existing 7.75 per cent to 7.65 per cent,” the public sector lender said in a filing with the BSE.
The third-largest private bank Axis Bank cut fixed deposit rates by up to 25 bps across various maturities in the 18-36 months window.
Similarly, for deposits of up to 18 months, the rates have been reduced by 15 bps to 8.50 per cent. Earlier this month, Axis Bank’s rival HDFC Bank reduced its deposit rate by 25 bps on deposits between ₹1 crore and ₹5 crore.
While banks claim the policy moves generally take time to get transmitted into actual lending rates, the RBI has been unhappy with banks for not passing the benefits of the rate cuts to borrowers.