Veteran banker Uday Kotak, on Monday, said there is likely to be further reduction in interest rates by banks over the next month, and said the high rates on small saving instruments reduces the ability of banks to cut deposit rates.
“I think picture abhi baaki hai. Watch what happens over the next 20 to 30 days. There will be further reductions, I believe, across the banking system,” he said in response to a question at the Lalit Doshi Memorial Lecture.
“But one of the reasons is also the government’s high small savings rates. If they are high, it reduces the banks’ ability to reduce deposit rates,” he said, adding that lower small savings rates will be a big step towards lower interest rates from banks.
“But let me say that our cost of funds, both at our bank and in the industry at large, is coming down… and you will see interest rates for borrowers coming down and a cut in deposit rates as well,” he said.
His comments come at a time when the Monetary Policy Committee of the Reserve Bank of India is holding its third-bi-monthly meeting and is widely expected to cut rates by another 25 basis points on August 7.
However, transmission by banks of the previous rate cuts are yet to happen fully. Meanwhile, the Managing Director and CEO of Kotak Mahindra Bank, also said that India needs to grow at 9 per cent annually for the next 20 years to reach China’s growth rate.