It is quite possible that from third quarter this year, interest rates, both on deposits and advances might increase, as predicted by state-run IDBI Bank.

If adhered to Yogesh Agarwal, Chairman and Managing Director, IDBI Bank then vast government borrowing programme, along with expected demand push from the corporate sector in the third quarter, would lead to the interest rates increase.

He added, "As part of the interest rate cycle, we have seen that in the past few months the interest rates have softened. The situation is now going to turn as in the third quarter, when the corporate demand picks up; one should be ready for higher interest rates."

The government's gross market borrowing was hiked by the Union Budget 2009-10 for the current fiscal at Rs 4.51 lakh crore.

At present, the benchmark prime lending rate of IDBI is 12.75%. As per Mr. Agarwal, the PLR could not be reduced further, since consumer price index was still revolving around nine per cent.

He expressed, "Huge fiscal deficit is a valid concern, but the government is yet to come out with how the proposed market borrowing is financed. The Budget did not spell the roadmap of the proposed market borrowing plan. There are many ways in which it can be done, like, private placement of bonds, open market operations and disinvestment."