MUMBAI, Nov 16: Bank of India will announce a second round of deposit rate cuts on Monday. The bank had earlier revised its deposit rates with effect from November 1 following the bank rate cut and two percentage point slash in cash reserve ratio announced by the Reserve Bank of India in its busy-season credit policy last month.

"We will cut deposit rates at certain stages and realign the existing slabs on Monday. The cost of funds needs to be reduced. Once this is done, there could be a second round of prime lending rate (PLR) cut in January," a senior BoI executive told this paper.

BoI will be the second bank to announce a deposit rate cut for the second time within a fortnight after the busy season credit policy of October 21. Union Bank of India pared rates by 50 basis points (0.5 per cent) across the board last week.

This is widely interpreted as a prelude to a second round of lending rate cuts as real interest rates are still on the higher side with inflation ruling very low at 3.23 per cent.

The issue was discussed threadbare at finance minister P Chidambaram's meeting with public sector bank chiefs early this month. The bank chairmen pointed out that the cost of delivery of credit is quite high and there will thus have to be a reduction in liability costs to some extent.

Most of the public sector bank chiefs are hinting that there could be a further reduction in lending rates.

With the inflation rate for the week-ended November 1, 1997, within striking distance of the all-time low of 2.97 per cent, real interest rates are pegged at a phenomenally highrate of 9.5 per cent.

"Lending rates will have to come down further to trigger industrial growth. As a necessary precondition to that, deposit rates need to come down," said the chairman of a Mumbai-based public sector bank.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.