Oriental Bank of Commerce has cut interest rate on term deposit for short term maturity and said it is laying the ground for cutting lending rates which may reduce the interest rate on home and auto loans.
The bank cut deposit rate on 91-179 days by 0.25 per cent and on 180-269 days by 0.50 per cent.
Going forward more cuts could be expected both in deposit and lending rates, the bank said.
"I expect so (more deposit rates cut) because the liquidity is reasonable in the system in the sense that although we may feel there is a deficit of liquidity in the system but banks are sitting on surplus SLR (Statutory Liquidity Ratio), they can borrow from repo window plus not much of offtake of the credit so therefore liquidity is adequate in the system and banks are comfortable with the liquidity so we are preparing ground for reduction in lending rates," chairman and managing director SL Bansal told NDTV.
The rate cut by the Reserve Bank of India (RBI) earlier in the month on easing inflation is yet to see banks pass on any cut in lending rates to customers. The RBI had cut repo rate--the rate at which the central bank lends short-term money to banks-- by 0.25 per cent to 7.25 per cent on May 3.
Mr Bansal believes the deposit rate cut should not act as a deterrent for deposit growth as options with the customers are limited.
"Earlier all of us were thinking money is flowing into gold and the real estate market. Now real estate market is coming to a standstill, the rates are not moving. Similarly gold prices have started falling, so what we believe as a banker that some money will flow through the banking channel. The inflation is also slowing, a welcome sign and it is coming down dramatically. Once these things happen the customers will be comfortable and then he will come to the bank and 25 basis points, 50 basis points lower in deposit rate will not affect his mind too much," he said.
Going forward, Mr Bansal expects deposit rate to be 8.5 per cent in the next 25-30 days. He believes customers would be more comfortable with a deposit rate of 8.5 per cent with inflation at 5 percent as compared to the interest rate of 9 per cent when inflation too was at 9 per cent.
At 12:43 pm, shares of Oriental Bank of Commerce were trading 0.37 per cent lower.
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