India's second largest private lender, HDFC Bank has finally announced a cut in the interest rates of its deposits across various maturities. The deposit rates have been cut by 50 to 225 basis points and are applicable from December 4th. The bank will however reduce the lending rate only after reviewing the impact on fund mop-up.

In the past few months, HDFC has witnessed a dynamic inflow of funds. A senior executive of HDFC Bank said, "We have seen a very healthy flow of deposits in the last few months, probably next only to State Bank of India."

Even the foreign lender, HSBC has declared a dip in its deposit rates of 6 months to 3 years maturity. Investors can now earn between 7% and 8.25% in the various deposits the bank.

Public sector banks have already announced a cut in their deposit as well as lending rates and for most banks this revision came into effect from December 1st. The PSU banks cut their rates following the RBI decision to reduce its key policy rates like CRR and Repo rate. However RBI's move did not induced the private and foreign players to take a decision immediately.

Until now no private lender has reduced its interest rates but as HDFC has taken a step others are expected to follow the suit in the next few weeks. A senior executive with a large private sector bank said, "Interest rates are definitely headed southwards and it is in our interest to cut lending rates over the next few weeks. We are examining the possibility."

ICICI Bank Executive Director V Vaidyanathan said, "We are closely watching the market movements on liquidity and interest rates and will take a decision accordingly." Currently ICICI is offering interest rates between 7.50% and 10.50% on deposits with tenure ranging between six months and three years.

On the other hand many private and foreign banks, including IndusInd Bank and Standard Chartered Bank, are still offering 11% interest on their fixed deposits. Investors with IndusInd Bank can earn 11% on deposits of 200, 400 and 1,000 days, while those with Standard Chartered will receive same rates on deposit of just 95 days.

Romesh Sobti, Managing Director and CEO, IndusInd Bank said, "The trend in interest rates is downwards. We feel liquidity is comfortable. We have our assets and liability committee meet next week, where we will decide on interest rates for both lending and deposit. There could be a 25-50-bps cut in deposit rates and lending rates will be concurrent. We have to consider that liability rates are yet to fall. Now that some banks have slashed rates, we all will also follow."

Public sector Andhra Bank has lowered its short-term deposit rates by 50 to 75 basis points with effect from December 5th.