However, there could be a time lag for the interest rates to come down. As Bank of India chairman and managing director T S Narayanasami said, “Ideally speaking, liquidity should bring down interest rates, but this may take a month or two because banks have a lot of sanctions in the pipeline, which are yet to crystallise into disbursements.”

IDBI chairman Yogesh Agarwal said, “By using the repo rate, the RBI is signalling that the overnight rates must fall in the corridor within the reverse repo and the repo rate. All these are strong growth signals,” he said. Inter-bank call money rate closed at 17.50-18 per cent during the weekend.

Bankers say that the steps would bring relief to the entire banking system and ease lending and deposit rates. “I would say the system would need some more liquidity for the whole economic cycle to go back to active levels. One will still have to see reduction in market rates. Deposit rates and lending rates have not come down,” Kochhar said.

Narayanasami said there is pressure on deposits, liquidity alone cannot solve the issue of certain banks, which are currently operating on a high credit-deposit ratio.

Banks, which had been on an advertisement spree asking consumers to park their savings in fixed deposits, now say that rates are expected to fall to single digits. “We see single digit deposit rates soon,” Punjab National Bank CMD K C Chakrabarty said.

As banks are unanimous that the interest rates will come down over the month, Bank of Baroda CMD MD Mallya said his bank may take a call on reducing interest rates early next week.

... contd.