Banking industry lobby group Indian Banks’ Association (IBA) today said the interest rates on deposits are expected to fall further in this quarter on surplus liquidity and weak demand for credit.
“With sufficient liquidity and not much demand for bank credit, after the fourth bi-monthly policy statement, many banks have reduced their deposit rates. This trend is quite likely to continue in this quarter also”, T M Bhasin, Chairman, IBA & Chairman & Managing Director Indian Bank, said in statement.
Though banks have not reduced lending rate as such after the fourth bi-monthly policy, many have reduced the spread in their retail portfolios.
Reserve Bank of India in its fifth monetary policy review said indicated that the revival of investment demand depends on the removal of the constraints in the infrastructure sector. This is quite significant for the banking industry because, commercial banks are the second largest source of finance for infrastructure in the country, IBA added.
RBI’s policy kept the repo rate unchanged indicating no change in the policy stance for the time being. Though a rate cut would have cheered the Industry, RBI decided to wait for clear and sustainable trend from the inflation front as well as from the fiscal front. For the banks, low credit growth is a cause of concern.
Bank credit growth for the current year (starting April 2014) up to 14th November stood at 4.3 per cent as against 7.1 per cent of in same period last year. Deposit growth at 7.1 per cent was higher than the credit growth of 4.3 per cent during the current financial year so far.