Banks may cut deposit rates to boost lending: IBA chief

08 April 2009

Major banks in India, especially public sector banks, are likely to reduce deposit rates in order to bring down their cost of funds and cut lending rates further.

Banks have not much room to cut lending rates further as the cost of funds are still very high, although lower rates are in the interest of lenders, the chairman of the Indian Banks' Association said.

"It is in our own interest to bring down lending rates so that our asset portfolios do not get impaired. We are making every endeavour to see that cost of funds are bought down," IBA chairman TS Narayanasami said after a meeting with the reserve Bank governor Duvvuri Subbarao.

The RBI governor had convened a meeting with the heads of major Indian banks ahead of the central bank's annual policy review due on 21 April.

"We will see more banks dropping deposit rates in the next fortnight to recover their costs so that they can pass on the transmission of interest rates," Narayanasami who is also the chairman and managing director of Bank of India, said.

The IBA chief's comments come amidst an unprecedented rise in banks' liquidity. On Monday, Indian banks parked a whopping Rs1,22,000 crore with the RBI even as inter-bank call rates dipped to a low of 2.1 per cent before closing at 3.55 per cent.