A soft lending regime is likely to emerge in the public sector as another state-run bank decides to cut its deposit rates. UCO Bank is set to reduce its prime lending rate by around 100 basis points from January, pointed Mr Subodh Kumar Goel, Chairman and Managing Director of the bank.
"With inflation declining to 8 percent and the liquidity position in the system improving substantially, banks may now find it easier to reduce their deposit rates. We plan to cut our deposit rates from January 1," added Mr Goel.
The Chairman however did not mention the extent of the rate cut and informed that the matter will be decided on their asset liability committee meeting that is set to take place on December 26th.
Sources anticipate the bank to cut rates by 75 basis points and when asked about the same to the Chairman, he said, "It is difficult to say. It could be more than that. We will link that with the inflation rates."
Indian Banks' Association (IBA) Chairman T S Narayanasami said that the interest rates will decline further by the end of the financial year. "Interest rates on both deposit and lending are expected to come down by 150 basis points by March 2009."
Bank of Baroda Executive Director R K Bakshi also expects the deposit rates across the banking industry to fall by another 100 basis points in the following week. "It will help bring down the cost of funds and this will create the capacity to reduce the lending rates thereafter," he said.
Chennai-based Indian Bank has already reduced interest rates of domestic term deposits of various maturities by 25 to 150 basis points.