Interest rates not to see any rise before October
By Vaibhav Aggarwal
Sep 20, 2010
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The recent policy rate hike by the Reserve Bank of India in monetary policy review has created a stir as to interest rates on deposits as well as loans would also see a corresponding rise or not.

Bankers however have assured that interest rates will not see any rise before October as credit growth is yet to take a rise.

Also, it is expected that deposit rates may rise before lending rates as an improvement on the slow growth of deposits.

Mr M.V. Nair, Chairman and Managing Director, Union Bank of India, said that deposit rates would increase so as to benefit the savers.

"Deposit growth is lower than the RBI's projection. If it continues to be low, it cannot support the credit growth, which will pick up in the busy season. So, the priority at this point of time has to be deposit growth,'' he said.

According to Mr M.D. Mallya, CMD, Bank of Baroda, the policy rate hike by RBI is a clear indicative that there is an upward bias in interest rates.

"It is also possible that deposit rates may go up first, and then the lending rates, subject to credit demand. A hike in rates may not happen immediately as we have just tweaked the rates," he said.

According to Mr D. L. Rawal, CMD, Dena Bank, only deposit rates are going to see a rise by beginning of October.

"Once credit picks up in the third quarter, we will have to up interest rates on term deposits," he said.

"Given that credit growth has been lacklustre in the second quarter, banks may not revise the base rate. Status quo on the base rate will encourage credit growth during the festive season. Base rate, however, will get revised in the fourth quarter as banks will take into account the deposit rate hikes effected in the previous quarters,'' Mr Rawal said.


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