Leading domestic rating agency Crisil today said banks are likely to sharply hike their deposit rates in the second half as the lenders are expecting a strong revival in credit growth during the rest of the year. Noting that the bankers' response to the steady monetary tightening steps by the Reserve Bank has been measured and gradual in the first half of the year,Crisil expects sharper rate hikes in the second half,and says that this may be accentuated if the Central Bank effects any further rate hike in the second half. "We believe credit offtake will be substantially higher in H2,because credit demand is by nature back-ended in our country,given the festive and agricultural harvest seasons in the second half. Moreover,banks have sanctioned loans to a slew of large infrastructure projects which have obtained the necessary approvals and mobilised equity,and may now begin to draw down loans," Crisil Ratings head Suman Chowdhury said. In addition,he points out that steady industrial growth and strong IIP numbers indicate that the manufacturing sector may soon look to put capital expenditure programmes on fast track,and need increased funding to meet working capital requirements. The agency also noted that the interest rates have been firming up with several banks increasing both their deposit and lending rates in the first week of October. Since March 2010,RBI has raised the repo and reverse repo rates by 100 and 150 basis points,respectively,primarily in response to inflationary pressures in the economy. RBI has,in its mid-quarter review of the monetary policy in September,increased the repo rate to 6 per cent from 5.75 per cent and the reverse repo rate to 5 per cent from 4.5 per cent. Crisil estimates that deposit rates have,however,risen,on an average,by only 50 basis points during the first half of the current fiscal. Clearly,the rise in benchmark rates are yet to be fully transmitted to the deposit rates. This is because aggregate bank credit has grown by 4.3 per cent or around Rs 1.4 trillion during the five months ended September 10,which is higher than the growth of 1.3 per cent witnessed in the same period last fiscal. But,lower than the expectations of the banking industry,which continues to target an overall credit growth of 20 per cent in 2010-11. The current credit growth has been funded comfortably by current accretions to deposits,without material changes to the system's credit-to-deposit ratios,said Crisil,adding buoyancy in the economy should,therefore,translate into strong growth in credit offtake for the banks over the next few quarters. The lending rates are expected to firm up gradually in response to the regulatory measures,and a tighter liquidity scenario; moderate increases in the banks' base rates announced recently underscore the general expectation that the momentum in credit offtake will pick up in the last two quarters of the year.
