Union Bank of India CEO Rajkiran Rai today said that deposit rates could come down by around 40-50 basis shortly as a result of the announcements by the Reserve Bank of India. He was speaking in a panel discussion on CNBC-TV18 on the RBI measures announced today.

He said there was a greater transmission of interest rates happening now, meaning that interest rates in the system were reflecting the changes announced by the RBI in benchmark rates.

“The deposit rates have come down substantially because 40 bps gets passed down as External Benchmark based Lending Rate cut immediately and MCLR (marginal cost of funds based lending rate ) is gradually coming down," Rai said.

On the flip side, savers will have to brace for lower rates on their deposits with banks. That is because when borrowing rates for customers fall, there is a corresponding fall in the interest rate that banks give to its deposit holders.

“Deposit rate...a further cut will be a bit difficult because as it is we are the lowest point, but looking at the deposit growth another 40-50 bps cut on the deposit side is possible,” Rai said.

He said there was scope for a reduction in the savings deposit rate as well.

“2.75 percent is for SBI. We are slightly above that but there is scope for a further cut in savings rate also,” added Rai.

Rai said the RBI could come out with a loan restructuring package soon, adding that non-performing assets at banks could start piling up the second and third quarter if loans are not restructured.

First Published:May 22, 2020 11:47 AM IST