* Barclays Capital expects the 10-year bond yield to fall toward 7.50 percent over next three months. New 10-year bond yield currently at 8.19 percent. * Banks' demand for bonds to meet reserve requirement to increase by 350 billion rupees in July, which along with 140 billion rupees of bond maturities to largely offset issuance pressures for the month, note says. * India will auction 1.56 trillion rupees of T-bills in the July-September quarter, less than the 2.04 trillion rupees maturing, which is net positive for banking system liquidity conditions, note says. * Hike in deposit rates by State Bank of India supports view that tight liquidity conditions will keep deposit rates elevated, which will in turn limit banks' ability to lower lending rates. * Barclays expects RBI to allow liquidity conditions to ease so that call rate trades 15-40 bps below repo rate.
Reporting by Subhadip Sircar; Editing by Sunil Nair