Bankers wait and watch

While competitive pressures may delay a hike in the prime lending rate, a possible squeeze in liquidity from credit growth may force bankers to revise deposit rates upwards. However, at present, senior bankers are adopting a wait-and-watch approach. State Bank of India chairman A K Purwar said the country's largest bank would review its rates, but he did not expect rates to go up. By hiking the reverse repo rate, the governor has given an indication that there is a probability of uncertainty on interest rates in times to come. It is a signal for the market to be prepared for any eventuality on interest rate movement, said Mr Purwar. We are keeping a close watch on the interest rate scenario. However, there is no trigger for an immediate hike, said Kalpana Morparia, deputy managing director, ICICI Bank. According to K Cherian Varghese, chairman, Union Bank of India, interest rates are not likely to go up. The increase in repo rate will improve our spread as we will earn more on surplus funds that are parked with the Reserve Bank of India, he said. The pace of deposit growth in the banking sector has slowed down primarily due to lower rates and previous uncertainty on the tax regime on NRI deposits. At the same time, the government has announced a large borrowing programme, which is expected to increase pressure on liquidity. The first signs of upward pressure on interest rates were witnessed in the bond market where yields on the liquid 12-year bond went up by 16 basis points on Thursday. I do not think interest rates will move up in the immediate future. However, due to the symbolic hike in the rate, depositors would expect higher returns on deposits, said A K Khandelwal, chairman, Bank of Baroda. Mr Khandelwal said that the surplus liquidity in the system will not last due to credit growth. Coupled with this, the pace of deposit growth is also going down. These factors will prompt banks to reconsider deposit rates, said Mr Khandelwal. According to M V Nair, executive director, Dena Bank, Interest rates will see an upward movement, in general, and rise by 25 to 50 basis points in the next six months. Dalbir Singh, CMD, Central Bank of India, I don't foresee any change in interest rates, at least for the next 3-4 months.

Bankers wait and watch

While competitive pressures may delay a hike in the prime lending rate, a possible squeeze in liquidity from credit growth may force bankers to revise deposit rates upwards.

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