New Delhi: What is happening to the interest rates in this country? The honeymoon period got over too soon, one that saw the salaried class smiling ear to ear. Just about a year back the interest rates were as low as never before and people could actually be seen rushing down to buy everything—from cars to homes—on ‘cheap credit’ lured by the easy pay-back options and flexible EMIs.
However, as the Reserve Bank of India sucks out liquidity from the system with two consecutive CRR hikes (cash reserve ratio), cheap loans seem to have died an early death.
The latest move that has piled on to the interest burden is the restriction put on the ECBs (external commercial borrowings) by the government.
The trend that’s emerging now is completely anti-consumer and pro-capitalist—low rates on deposit while skyrocketing interest rates on loans.
The interest rates on home loans, which were as low as 6.5 per cent just a year ago are now hovering at 11.25 per cent. Same for car loans, which were at 4.25 per cent a year back and now as high as 12.75 per cent.
ICICI, Dena bank cut deposit rates
As expected after the RBI’s announcement of the new credit policy, banks are now cutting down deposit rates across the board. On Wednesday ICICI and Dena bank announced a cut in their deposit rates by 25-50 basis points.
The announcement comes in the backdrop of the latest hike by 50 basis points in the cash reserve ratio announced by the RBI in its credit policy statement. Ironically, interest rates on special deposit schemes remain unchanged, and ICICI Bank continues to offer rates at 9.5% on term deposits of 390 days, 590 days and 890 days.
ICICI Bank reduced interest rates on deposits less than Rs 15 lakh for two schemes. The interest rate for the 181-365-day scheme will be cut to 6.25% from 6.5% and that for the 366-day to 2-year scheme will be cut to 6.25% from the existing 6.75%. A decision on lending rates, however, will not be considered as of now, said ICICI Bank executive director V Vaidyanathan.
The impact of the CRR hike, coupled with finance minister P Chidambaram’s indication to banks on reduction of deposit rates, has resulted in a lot of public sector banks already announcing a cut in deposit rates.
State Bank of India cut deposit rates on Monday while Bank of India, Bank of Baroda and Allahabad Bank had announced plans to lower deposit rates on the same day the central bank raised CRR.
Dena Bank has also reduced its deposit rates across tenors, with peak rates declining from 9.5% to 9%. “This cut in rates has come about as a direct reaction to the recent CRR hike,” said Vaidyanathan.
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