By ET Bureau | 31 Jul, 2013, 06.05AM IST | Economic Times
MUMBAI: Depositors and borrowers will have something to look forward to. Banks will not be raising home loan and car loan rates immediately even as they may soon hike short-term deposit rates.
RBI on Tuesday said that the measures taken last week to tighten liquidity would prevail as long as volatility remains in the currency market. Terming RBI measures as ‘temporary’, lenders said that they will not raise rates soon even if liquidity remains tight. Chairman of State bank of India Pratip Chaudhuri said: “Loan demand is too weak. We are waiting because we believe these steps are temporary unless they linger for very long none of the banks would increase the loan pricing. We have reasonably stable source of funding. About 2-3 weeks is something that we will have normal waiting period.”
Banks feel tightening is temporary, won’t raise lending rates, but may hike short-term deposit rates. RBI governor D Subbarao also gave an assurance that rates will soften. “Rates will come down but not until such time that volatility is contained.”
“Banks with adequate liquidity support will be in a position to hold on to their lending rate for at least 2-3 months,” said B Prabhakar, CMD of Andhra Bank, which lowered its lending rate to 10% just days before RBI tightened the liquidity in the system. Some PSU banks cut base rate – the floor rate at which they lend to best-rated corporates – on July 6 after being nudged by the finance minister to lower rates in order to kick-start the economy. Agreeing to this, Shikha Sharma, MD & CEO of Axis Bank, said, “Immediately, we do not see the need to raise rates. We have to see what happens in the next 6-8 weeks.” Depositors would benefit most as banks are likely to raise deposit rates.
“Tight liquidity conditions will force banks to hike short-term deposit rates,” said S S Mundra, CMD of Bank of Baroda. Although banks have yet not raised deposits rates for retail depositors, interest rates on certificate of deposits and bulk deposits have gone up significantly. The three-month CD has touched 10.85% while interest rate on term deposits is in the range 7.5-9%.
According to Chanda Kochhar, MD and CEO of ICICI Bank, “The short-term borrowing costs of banks have gone up. What happens to the long-term rates depends on the time period. What needs to be looked at is some trend and multiplicity of factors.”
Source : http://goo.gl/5s5VPw