For the second time in the last one month, Axis Bank has cut interest rates on fixed deposits with tenures between one year and 18 months by 25 basis points to 8.50%, in a move to lower its cost of funds as credit growth remains muted.

In September, Axis Bank had lowered interest rates on deposits with a maturity of between one year and 18 months by 25 basis points to 8.75% and 18 months to five years by 25 basis points to 9%.

In the fortnight to September 21, 2012 deposits grew by 13.66% y-o-y, taking the outstanding amount to R62,90,874 crore. Bank deposits contracted by R30,152 crore during the fortnight ended September 21 as many banks, including SBI, HDFC Bank, ICICI Bank and Union Bank, cut their interest rates on term deposits. On Monday, Bank of India had also cut its deposit rates on certain short-term maturities by 25 bps.

More banks, such as Bank of Baroda and Bangalore-based Canara Bank, which have not yet cut their deposit rates, could do so soon. Both banks had hinted at a deposit rate cut post the lowering of CRR by 25 bps to 4.50% by the RBI on September 17. Banks are cutting their deposit rates on the face of non-food credit to companies and individuals growing at just 1.3% between April and September this year, versus the comparable period in 2011, RBI data showed. Loan growth came in at just over 16% y-o-y in the fortnight to September 21, 2012, below RBI’s projected credit growth of 17% for 2012-13.

With liquidity having eased significantly in the past month, banks are also looking to cut down their high-cost bulk deposits, which have dipped by about 300 basis points from the highs of March, according to analysts.

Source: FI