Mumbai, Mar 19: The rates of commercial papers (CPs) and certificates of deposit (CDs) dipped by 50 basis points on Thursday even as banks were drawing up plans to pare short-term deposit rates following the 50-basis-point cut in the bank rate. The Reserve Bank of India (RBI) on Wednesday cut the bank rate to 10.5 per cent, reversing its tight money policy announced on January 16. In immediate reaction, forward premiums in the forex market crashed and yield on government securities dipped as prices soared."Interest rates on 90-day CP has come down by 50 basis points today. It is ruling now at about 15 per cent," one senior banker said. The CD rate also came down marginally. Private sector HDFC Bank revised its deposit rates. Under the new rate structure, the bank has created three slabs. Interest rates on deposits of 30-45 days have been pegged at 12.50 per cent, 45-90 days at 1.5 per cent and deposits of more than 90 days at 11 per cent.
Under the earlier deposit rate structure, the bank had only twoslabs. Deposits of less than 90 days were being offered 12.5 per cent, while those above 90 days were pegged at 11 per cent. "Ideally, there is a case for lowering the short-term deposits," a senior Bank of India executive said.
The bank had hiked its short-term rate to 12.5 per cent last year. The asset-liability committee of the bank will meet on March 17 to decide on the issue. The paring of short-term deposit rates will correct the inverted yield curve on term deposits. At present, across the board all banks are offering higher interest rates on short-term deposits thereby creating an inverted yield curve.
Public sector banks are unlikely to pare their prime lending rates (PLR) this month.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
