Bankers have stated that there is an increased chance to drop the deposit rates that might help in cutting down the lending rates. However, there is fear that the competing saving equipment such as tax-free bonds and PPF will have a limit on their capability.
Regarding this, Kotak Mahindra Bank’s Vice Chairman and Managing Director, Utak Kotak stated that they think that their deposit rates are going down. However, he stated that there is a nature to stick to the levels up to which the rates can go down. The major reason is the competition from the small savings rates.
He also referred to the investments made in the public provident fund (PPF) that earn 8.7 percent interest while the tax-free bonds give good yields. He stated that these two rival with the bank’s ability to cut down the deposit rates more than a particular point, but they are continuing to drop.
Right now, Kotak Mahindra Bank ranks the fourth largest one in the private sector lending market segment. This bank provides the highest interest rate of 8.25 percent. It is noted that the interest yielded by the fixed deposits is not free from tax.
The Managing Director and Chief Executive of ICICI Bank, Chandra Kochhar stated that the deposit rates have been dropping since November 2014 and they indicate the declining trend clearly. All the key banks have dropped the deposit rates in the past eight to ten months. In some cases, a number of rate cuts have happened. This move has helped the banks drop the base or minimum lending rates. The composition of deposit base as well as the duration taken to re-price decide the degree of lending rate drop.
The Deputy Managing Director of HDFC Bank, Paresh Sukthankar stated that the major case of deposit rate cut has been resulted due to the sluggish growth in the credit has stood below 10 percent. He stated that the deposit growth was reticent. However, the credit growth is trailing that keeps the banks away from adding more deposits and thereby affecting the cuts in the deposit rate.
