Competition forces are evident on the deposit side of banks' balance sheets, providing "extraordinary" terms for some customers, Ric Battelino, the deputy governor of the Reserve Bank of Australia, explained at a business lunch, held in Perth yesterday.In remarks after his prepared speech, Battelino said rivalry for deposits was intense. He said lending margins, a topic of much controversy, had not increased notably.Battelino said there was intense competition for deposits and cited the "extraordinary" level of term deposits on offer at the moment, in some cases, of seven per cent."What has happened now is that, because the availability of funds to banks is quite tight, the competition is all about raising money, so it is depositors who are getting the extraordinary deals, whereas if you go back 10 years it was the borrowers who were getting the extraordinary deal." Commenting on the debate over home loans with fixed margins, as proposed by the Greens, Battelino said "that rule does not exist, and it has never existed, and it would be quite risky for the financial system for such a rule to exist."Battelino also explained that the level of retail interest rates charged to borrowers, and taking into account bank pricing decisions this month, "is basically in line with what the RBA thinks it should be and it has got there with a combination of rises in [official] rates and a rise in deposit rates."The Financial Review and other media reported on Battelino's post-speech remarks.In his set text, Battelino picked up one other banking theme: the soft demand for credit."We have spent a fair amount of time at the bank looking at the question of why business credit is so soft," he said. "It is clear that banks had tightened lending standards sharply following the onset of the global financial crisis, which no doubt contributed to the slowdown in business lending. This has been most acute in the area of commercial property, where there has been a sharp cutting back, particularly by foreign-owned banks."More recently, there are signs that banks are becoming more willing to lend, at least in areas other than commercial property, but demand for loans, in aggregate, is not very strong. "It seems that the investment that is taking place in Australia, particularly in the case of the mining sector, is largely being financed outside the banking sector, either from retained earnings, direct investment from overseas or capital market raisings."Battelino said that the supply of credit to small business increased at an annual rate of five per cent over the last nine months.