Deposit rates unlikely to match rise in lending rate

Lending rates went up quickly following the Reserve Bank of India’s 40 basis points repo rate increment however deposit rates remained more or less sticky, and are likely to remain so till the time the market continues on having surplus liquidity, the nation’s top bankers said. There could just be nominal changes.

The external benchmark-linked framework makes transmission of monetary policy signals programmed with regards to lending rates, yet deposit rates are functions of credit demand as well as the prevalent liquidity situation.

“However long liquidity stays surplus in the system, there is no requirement for banks to compete for mobilising deposits and therefore deposit rates either continue as before or have seen nominal changes,” a CEO of a medium-sized public sector bank said.

He said that lending rates linked to external benchmarks rose 20 basis points on average. The share of external benchmark linked loans was around 40% of all out credits till December last year, RBI information showed.

Average surplus liquidity in the framework floats around ₹4-4.5 lakh crore. The yield for the benchmark 10-year government security is floating around 7.30% at present without showing a lot of instability, reflecting a comfortable fund flow.

This means savers will keep on suffering widening negative real interest rates amid spiralling inflation.