The Telegraph
Since 1st March, 1999
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Deposit rates hear hike rattle

New Delhi, June 11: Deposit rates are likely to move northwards soon, though bankers are reticent on such an outcome.

Deposits are not growing as fast as loans and advances. Deposits with scheduled banks for the week ended May 26 was Rs 22,13,161 crore compared with Rs 18,50,184 crore a year ago, an increase of 19.6 per cent.

In contrast, credit during the same period rose 29.7 per cent to Rs 15,56,846 crore from Rs 11,99,555 crore.

With credit growth outpacing deposits, banks are fearing a cash crunch.

The credit expansion in recent months is mainly due to healthy growth in forex assets of banks rather than expansion in demand and time deposits.

With foreign institutional investors’ (FII) inflows on the wane, forex assets may not rise adequately.

Reserves, which went up from $143 billion in February to $163 billion by mid-May, have declined marginally, due to withdrawals by FIIs and rising oil import bill.

With high oil prices and narrowing interest rate differentials vis-a-vis other countries, most analysts expect forex reserves to stay steady or deplete marginally in the coming months.

While banks are under pressure to increase deposit rates to make them more attractive, recent hikes in lending rates provide them with the necessary cushion .

The lending rates to prime customers is 11-11.5 per cent, up from 10.25-10.75 per cent a few months back.

Other rates have also increased. Personal and industrial loans are in the range of 11-16 per cent. Housing loans, which carried a tag of 7-7.5 per cent six months back, rule at 9-9.5 per cent.

Lending rates of banks have gone up by 2-2.5 per cent for most borrowers last year. While pressure from the finance ministry has ensured that prime lending rates ' the cost for top companies ' remained the same, rates for others have gone up.

Deposit rates varying from 3 per cent for a seven-day tenure to 7 per cent for 5-10 years have remained almost unchanged. “The cushion is now quite high for a deposit rate hike,” finance ministry officials said. Such a hike may also wean away money from speculative assets.

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