Banks raise deposit rates to attract savers

Banks are raising deposit rates to entice savers, as they seek to raise funds to meet growing demand for credit despite higher lending rates, and with the new spike in Covid-19 infections having little impact on economic activities.

The State Bank of India, the country’s largest lender, last week raised the retail rate by 20 basis points, or 0.2 percentage points, for term deposits less than two years old.

Private lenders

and Axis raised rates by 35 and 15 basis points, respectively, for similar maturities.

and were the most aggressive. IDFC First raised its savings deposit rate by one percentage point to 6% in May, offering 6% on deposits over Rs 10 lakh, in addition to raising term rates.

Kotak Mahindra raised its fixed deposit rates this month by up to half a percentage point.

Excess liquidity since June 2019

“We felt that since market rates are even ahead of the regulatory hike, the saver should also consider a more reasonable return,” said Shanti Ekambaram, president of consumer banking group at

Bank. “It’s in anticipation of a future rate hike; we’ll see how the market moves, demand and supply plays out, how liquidity is in the system and based on that, we’ll make a further decision.”

The RBI raised its benchmark repo rate twice in the past two months, by a cumulative 90 basis points to 4.9%, and guided a further hike amid mounting inflationary pressures. Banks reacted in tandem, raising their lending rates linked to external benchmarks such as repo in an equal amount. Deposition rates, however, have evolved quite slowly.

Deposits in Indian banks totaled Rs 165.7 lakh crore in the fortnight ended May 20, registering a growth of 9.3 percent, or Rs 14.1 lakh crore, from a year earlier. The banking system has faced excess liquidity since June 2019, due to faster growth in deposits relative to credit disbursements, except for the last two fortnights.

With the demand for loans strengthening and since deposits are cheaper than fundraising in the market, banks are also exploring new ideas to attract savers, in addition to raising rates.

Variable Rate FD

Private lender

launched India’s first floating rate fixed deposits that will be linked to the prevailing repo rate, offering clients dynamic returns on their fixed deposits of one year to less than three years.

“The Variable Rate Fixed Deposit is a unique FD product, one of the main advantages of this product is that the interest rate reset will happen automatically and will not require any manual intervention by the bank or customers,” said Yes Bank Managing Director Prashant Kumar. “There has been extensive deliberation and thought behind the launch of this floating rate FD, and it is another step towards enhancing our retail product offering.”

Kunal Shah, Senior Vice President of

said deposit rates could rise further.

“Retail term deposit rates have risen across the board, but out of proportion to the rise in repos,” he said. “The median savings deposit rate decreased by 60 basis points during the rate cut cycle, from 3.5% in January 2019 to 2.9% in March 2022. Therefore, it will also be raised with a shift in the scenario of rising interest rates.


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