ICICI Bank [Get Quote] chief executive officer and managing director K V Kamath has hinted at a 'steep and substantial cut' in interest rates in two-three weeks.

"We clearly see the processes where the market is signalling the rates down. Today, the leading indicator is the 10-year government bond, which in the space of the last two weeks has moved down by about 1.5 per cent. We have to keep that in mind. That will set in motion deposit and lending rate (cuts)," Kamath told reporters at the Indian School of Business.

He said bulk deposit and annual deposit rates were also declining. This had been happening for about a week and was an indicator of interest rates coming down, he said.

ICICI Bank, the second largest, has scaled down its growth plans this year, but is yet to tinker with lending and deposit rates. It has only reduced lending rates on new home loans of up to Rs 20 lakh (Rs 2 million).

The private sector lender has among the highest benchmark prime lending rates, which was revised to 17.25 per cent from August 1, 2008. The bank offers 9.5-10.5 per cent on deposits of more than a year.

On the other hand, public sector banks reduced deposit rates at the start of the month, as did private sector ones like HDFC Bank [Get Quote], ICICI Bank's keenest rival in the private sector, and HSBC. State-owned banks have capped the rate on bulk deposits. Government-owned State Bank of India [Get Quote], the largest in the country, has said it may reduce rates soon.

In fact, almost all public sector banks have pared lending rates over the last six weeks in the wake of measures taken by the Reserve Bank of India.

After RBI's latest monetary measures last weekend, which included a 100-basis-point reduction in repo and reverse repo rates, only three banks -- HDFC Bank, Union Bank of India [Get Quote] and Yes Bank [Get Quote] -- have so far announced a reduction in lending rate.

Public sector banks are working on offering cheaper home loans of up to Rs 20 lakh and may also prune interest rates on loans to small and medium enterprises.

"Lending rates and borrowing rates do not change so quickly. The banks should be sure that interest rates are reducing and that should be reflected in our books. The banks will understand that the rates are really coming down in a few more weeks. I can clearly see the prices coming down," Kamath said.

The drop in interest rates will be in line with market trends. "A trend is set for the interest rates to follow," he said, without quantifying the cut.