Bank FD rates crest, show first signs of softening

Planning a bank fixed deposit? Speed it up. For, deposit rates appear to have peaked and are set to slide over the next few weeks. After the mad charge to raise deposit rates in a bid to swell up liquidity, banks have now started bring the rates down.

Signalling the softening of rates, Central Bank of India and Oriental Bank of Commerce have already reduced their fixed deposit rates by up to 1 per cent on various maturities from April 1.

“I think the deposit rates may come down. As far as lending rates are concerned, we will have to wait for the RBI policy before taking a call on it,” said Bank of Baroda chairman and managing director MD Mallya.

The Reserve Bank of India is expected to go for another round of rate hike by 25 basis points in its annual credit policy for 2011-12 on May 3.

The move has come after a sharp improvement in liquidity position over the past few weeks. Mallya says easing of liquidity situation could result in softening of deposit rates on select maturities depending on the asset liability position of individual banks.

All banks raised their deposit rates after the second quarter Review of 2010-11, which contributed towards a larger deposit mobilisation in December. According to RBI data, deposit growth increased to 16.5 % by end-December 2010, close to the indicative projection of 17 % for 2010-11.

During 2010-11, deposits went up to over Rs 53.51 lakh crore from Rs 46.35 lakh crore as on March 26, 2010, the data showed. This is a rise of about 15.5 % on an annual basis.

Central Bank of India has cut interest rates on term deposits with maturity between 91 and 179 days by 100 basis points (or 1 %) from 8 per cent to 7 % effective April 1. Oriental Bank of Commerce has reduced interest rates on fixed deposits of over Rs 1 crore by up to 1 per cent for select maturities from April 2.

Source: [Money Guruindia]