Deposits likely to rise due to rise in repo rate

The Reserve Bank of India (RBI) has raised its key policy rates it is expected that it might bring cheers to depositors.

It is believed the increase in the repo rate is likely to raise corporate bulk deposit rates. In June bulk deposit rates had risen as much as 125 basis points, better than retail deposit rates, but it was temporary because of outflow of money from the system due to advance tax and 3G auction payments.

According to bankers due to rise in repo rate, increase in bulk deposit rates will be more permanent. T Y Prabhu, chairman and managing director of Oriental Bank of Commerce pointed out, “As a result, both short-term borrowing and short-term lending will become expensive.”

According to M D Mallya, chairman and managing director of Bank of Baroda hike in repo rates by RBI might not prompt any immediate increase in lending rates. “AN Increase in deposit rates may be a possibility”.

On the other hand SBI Chairman O P Bhatt had said that bank might think on raising deposit rates after the first quarter review of the monetary policy on July 27. The RBI had clarified that it want rise in interest rates to tackle rising prices and to give better returns to savers. RBI Deputy Governor K C Chakrabarty said on Friday, “We have to give better return to savers. The credit growth is higher, inflation is picking up, and so we have to curtail credit demand.”

According to RBI report between April 1 and June 18, banks were able to raise Rs 24,715 crore deposits which was below than the comparable period of last year, which was Rs 1, 31, 354 crore.

By June end banks deposit growth was 13.9 per cent which is much less than the RBI’s projected 18% growth, in spite of deposit growth in 12 months.