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Riding on a sudden spurt in inflow of short-term funds from high-networth individuals (HNIs)and private funds, banks are reducing the interest rates on short-term deposits.

While SBI and J&K Bank have already effected a 25 bps cut on short-term deposits to 3.75%, a host of other public and private banks are learnt to be planning a similar cut shortly.

Bankers said many HNIs and funds are temporarily staying away from the capital market due to the high volatility and are parking these funds with banks. Hence, the sudden spurt in fund inflows for short-term deposits.

Another reason given by bankers for reducing the short-term rates are their position vis-à-vis the international rates. The short-term rates, bankers say, are still on the higher side considering the international rates.

While wholesale parking of funds by converting into rupees has been restricted by bringing down rates of interest on NRE deposits, retail level investment are still attractive. Repatriation of these funds is not a problem as every individual can send up to $ 25,000.

Taking advantage of the situation, banks want to cut rates on short-term deposits that will help them to bring down the cost of their overall borrowings. "Short-term rates are an outcome of demand and supply position of funds.

This is on the higher side considering the international rates. With liquidity comfortable, banks are trying to align this rate to a realistic level," said K C Chakraborty, GM, BoB.

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