Banks unlikely to change lending, deposit rates after RBI policy review

Interest rates, both for deposit and lending, are likely to remain steady as the Reserve Bank of India (RBI) on Tuesday kept the key rate unchanged at its monetary policy review.

State Bank of India (SBI) Chairperson Arundhati Bhattacharya said, "Interest rates are likely to remain unchanged."

Echoing similar views Yes Bank CEO and Managing Director Rana Kapoor said, "Base rate and benchmark prime lending rate are unlikely to see any downward revision at the moment. It can happen only after policy rate moderates."

However, Kapoor said, there could be some adjustment in interest rate of long tenure deposits of over 3 years.

Some banks have done this and some more could do it based on their asset liability position, Kapoor said, adding that a few more banks can make changes in the coming days as system has ample liquidity.

According to United Bank of India Executive Director Deepak Narang, margins of banks are already under pressure due to high NPA level. "So, I don't see a cut in the interest rate at the moment," he said.

RBI Governor Raghuram Rajan on Tuesday kept interest rate unchanged in his fifth bi-monthly policy review, saying that a shift in stance is 'premature' but hinted that a cut may come in early 2015 if inflation continues to ease and government acts on the fiscal side.

Accordingly, the repo rate is unchanged at 8 per cent while the cash reserve ratio continues to be at 4 per cent despite Wholesale Price Index-based (WPI) inflation falling to a 5-year low of 1.77 per cent in October.

The low inflation is not because of structural changes in the domestic economy but due to fall in international prices of crude oil, which has slumped to a historical low, said Shashwat Sharma, Partner - Financial services, KPMG India.

"Therefore, we understand and appreciate the RBI's stance on no cut in interest rates and look forward to structural changes by the government in the domestic economy," Sharma added.

However, the central bank has clearly opened the window for rate cuts to begin in the next monetary policy review in February 2015 or possibly earlier, Kapoor said.

"I see space for monetary accommodation to the tune of close to 100 basis point cut over the course of next 12 months in 2015-16," he added.