Private lenders to hike deposit rates in coming months

Few days back the Reserve Bank of India (RBI) raised its key policy rates as a result private sector banks are in the process of gearing up for a deposit rate hike.

Private banking sources said, most likely the private banks in the coming months will be hiking deposit rates before switching to base rate system for lending.

Moreover by raising deposit rates these banks will be able to mobilize their funds in more efficiently to meet the credit demands in the system, burdened with liquidity crunch.

Ashish Parthasarathy, treasurer at HDFC Bank pointed out, “After the recent hike, RBI is expected to increase both repo and reverse repo once again by 25-50 basis points in the next monetary policy. Banks are expected to raise their deposit rates soon.” He added, the hike in deposit rates will help the banks in achieving their deposit growth target.

In the past few months, the banks have witnessed decline in the growth of deposits. For the fortnight ended June 18 banks deposits rose up to 13.92%, as against 14.34% y-o-y in the previous fortnight.

PC John, executive director, Federal Bank said, “Our asset liability committee will review the interest rate situation in its July meeting. We are also keeping a close watch on what other private banks are doing to stay competitive”.

RVS Sridhar, president & head markets (treasury), Axis Bank, said, “Banks will increase deposit rates depending on their fund requirements for credit offtake. The system is currently going through a liquidity crunch.”