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Money Guru | Savings deposit rate of 5.5% is acceptable

Money Guru | Savings deposit rate of 5.5% is acceptable
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First Published: Sun, May 15 2011. 09 05 PM IST

Nagesh Pydah, chairman and managing director, Oriental Bank of Commerce
Nagesh Pydah, chairman and managing director, Oriental Bank of Commerce
Updated: Sun, May 15 2011. 09 05 PM IST
Most bankers were expecting a 25 basis points (bps) increase in policy rates, but the Reserve Bank of India (RBI) increased it by 50 bps. Are you surprised by the quantum of hike? What impact it may have?
Though most bankers were expecting a 25 bps hike in both repo as well as reverse repo rates, it was still not a surprise to see both the rates going up by 50 bps each. The latest move by the apex bank is with a view to control inflationary pressure. Earlier, the apex bank was trying to maintain a balance between growth and inflation but with the Indian economy now growing around 8.5%, they thought the time is ripe to press the button hard.
As a result of the latest policy decision, interest rates are going to become dearer.
Oriental Bank of Commerce (OBC) has increased its base rate as well as benchmark prime lending rates, but has left deposit rates untouched. What’s the reason?
Nagesh Pydah, chairman and managing director, Oriental Bank of Commerce
In our view, deposit rates have already peaked and barring unforeseen situations, upward movement in deposit rates is unlikely. As far as lending rates are concerned, that depends on RBI’s policy decisions. If they increase rates further, we may have to follow suit.
RBI has also increased interest rate on bank savings accounts to 4% per annum and has also floated a discussion paper on deregulation of the same. Your comments.
The increase in interest rates on bank savings accounts to 4% from 3.5% earlier is going to hit our margins by 10-15 bps. But at the same time, due to increased attractiveness of bank savings deposits, a chunk of in-hand cash will flow into the banking system and that would, in turn, ensure interest rates on term deposits do not harden much.
As far as deregulation of the savings deposit is concerned, we are of the view that the time is not ripe for the same. I personally fear an unhealthy competition in the space if it is deregulated, which will be bad for both banks as well as customers. There was a time when savings deposits provided 5.5% to customers. If the regulator increases the rate even to that level, we would be fine with it.
OBC is not present in the creditcard space. Do you want to venture in the business?
Credit card business as such is not a very profitable portfolio for most banks. Having said that, I strongly believe that as a bank we must offer all financial products that other banks provide to customers. Hence, we have decided to foray in the credit card segment as well. In fact, we are already in talks with Punjab National Bank for the same. We will use their infrastructure and, in turn, share part of our revenue with them.
The retail portfolio of OBC is not very big. Even your housing loan portfolio is small. What are the reasons for the same?
Yes, our retail portfolio may be small compared with some of the bigger banks but year-on-year (y-o-y) our retail portfolio has increased by 30.43% to Rs 8,748 crore.
As far as our home loan portfolio is concerned, it grew 15.47% y-o-y to Rs4,453 crore. The reason for slow growth in home loan is mainly on account of the fact that we do not encourage giving the second home loan to individuals. While individuals take their maiden home loan for residential purposes, the second home loan is taken due to speculation and we discourage such practice. In short, we are here to practise sound banking, not speculative banking.
abhishek.a@livemint.com
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First Published: Sun, May 15 2011. 09 05 PM IST
More Topics: Money Guru | Nagesh Pydah | Interest Rate | OBC | Repo |