Deposit rates moved up over the last few months as banks' wooed customers to battle tight liquidity that bumped up overnight cash rates to more than 20 per cent in October.
'The central bank move is a signal for the system rates to soften. But deposit rates need to adjust first,' said Mr Chanda Kochhar, joint managing director of India's second-largest bank ICICI Bank .
'There is adequate liquidity in the system now. But for interest rates to fall you need surplus liquidity.'
The central bank on Saturday cuts it key short-term rates by 1 percentage point but left its liquidity boosting tool, the cash reserve requirement, unchanged. See .
On Friday, Mr O.P.Bhatt the chairman of top lender State Bank of India said a cut in reserve requirement was needed to ease interest costs as the central bank rates only impacted a small part of the funds of the banking system. See .
Despite a 150 basis points cut in the key central bank lending rate and a 350 basis cut in reserve requirement since early October to Friday, banks' have cut lending rates by just 75 basis points.
And loan disbursement has stayed high at 27 per cent on year as the global liquidity crisis dried up overseas debt.
'Monetary transmission takes time. There is admittedly some risk aversion. There is a tendency to maintain more than adequate liquidity,' central bank governor Duvvuri Subbarao said on a question on why banks were not cutting rates. -- THOMSON REUTERS