FDs rates are likely to reduce by 100bps

At present peak deposit rates are between 9.5 and 10% but it is expected banks might soon cut fixed deposit rates by 100 basis points in two steps which will bring them to a maximum of 9%.

It is expected that the reduction in deposit rates will help in protecting margins for the banks that have reduced lending rates by around 150 basis points over the past few weeks.

“Banks have to keep a gap between their lending and deposit rates in order to maintain their net interest margin. Lending rates have already been cut. Deposit rates have softened and are expected to come down further in the next few weeks,” Uco Bank executive director V K Dhingra said.

By the end of this month government-owned banks are expected to slash down the deposit rates by 50 basis points and by another 50 basis points by end of January. The rates might vary depending upon the tenure of the deposit. Most banks are offering the highest return on one-year deposits.

State Bank of India country’s largest bank, is among the banks which may cut the depost rates by 50 basis point cut from January 1. An SBI official informed that the asset liability committee (ALCO) of the bank in its recent meetings has taken up the issue therefore it is expected the bank will be making announcement in this regard in a few days.

Mr Dhingra added, “The money market condition is also showing signs of easing which in turn is bringing down the requirement of high-cost fund for banks. These conditions indicate possibility of further cut in deposit rates”.

On the other hand all the PSU banks have reduced their lending rates by an average of 150 basis points in the last few weeks on almost all loans to their prime borrowers. Although in some cases, such as for small housing loans, the rate has been reduced has been even sharper at 200-300 points.

In comparison to this the deposit rates have come down by only 50 basis points leaving scope for another 100 basis point reduction in deposit rates. While the rates for saving bank deposits will remain at 3.5%.