State-run IDBI Bank expects interest rates, both on deposits and advances, to increase from the third quarter of the current financial year.
Huge government borrowings along with expected demand push from the corporate sector in the third quarter would lead to an increase in interest rates, said Yogesh Agarwal, chairman and managing director, IDBI Bank, at the Ficci Banking Conclave in Kolkata on Friday.
"As part of the interest rate cycle, we have seen interest rates softening in the past few months. The situation is going to change in the third quarter now, because when the corporate demand picks up, one should be ready for higher interest rates," said Agarwal.
The Budget 2009-10 has pegged the government's gross market borrowing for the current financial year at Rs 4.51 lakh crore (Rs 4.51 trillion).
At present, the benchmark prime lending rate of IDBI Bank is 12.75 per cent. Agarwal said there was not much scope for a further cut in PLR as the consumer price index was still hovering around 9 per cent.
According to him, huge fiscal deficit was a valid concern and the Budget did not spell out the road map of the proposed market borrowing plan. There are many ways in which it could be done, like private placement of bonds, open market operations and disinvestment, Agarwal further said.
The bank expects deposits to increase by 20 per cent and advances to go up by 18 per cent in the current financial year. In the last financial year, it witnessed a robust 56 per cent growth in deposits and a 26 per cent growth in advances.
As the economy was not doing too well, so the growth projections would not compare with that of last year, said Agarwal. In the April-June quarter, the bank expected disbursement to go up by 15 per cent and deposits by 20 per cent on a year-on-year basis.
Net interest margins for the June quarter could be 0.8 per cent, said Agarwal.
