No relief in sight from high interest rates as banks raise deposit rates

Posted By: Religare
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Borrowers lose as interest rates edge higher
Some days back the finance minister P Chidambaram was urging banks to cut their lending rates to boost economic growth, following which some lenders had started to cut their deposit rates, as that was necessary to ease the lending rates.

But now within two weeks, the whole scenario has changed. Banks have now instead started raising the deposit rates further signalling the cut in lending rates is far from reality. On Wednesday, three private sector lenders Yes Bank, HDFC Bank and Axis Bank announced an increase in deposit rates for shorter maturities.

The move came after rise in short-term borrowing rates for banks as RBI tightened the liquidity recently. The central bank reduced the funds that banks could borrow from its LAF window and also curbed their ability to borrow by hiking the MSF rate by 200 bps.

So, borrowing from RBI has become costlier for banks and that can affect their margins adversely, due to which they might now go for hike in deposit rates. Hike in deposit rates may also be followed by increase in lending rates, said experts.

Read more about: banks, deposit rates, lending rates
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