After a gap of about three years, commercial banks have started increasing fixed deposit rates for their retail customers.
At least two private sector lenders — Kotak Mahindra Bank and Yes Bank — have raised interest rates on fixed deposits by 5-25 basis points (bps) for some tenures. (100 bps = 1 percentage point)
Kotak Mahindra Bank will now offer 6.7% for 364 days, which is a rise of 10 bps. For deposits of more than three years but less than five years, the bank is offering 6.5% — an increase of 25 bps. The new rates were effective December 27. “Interest rates have moved in sync with liquidity conditions in the market,” said Ambuj Chandna, head – Retail Liabilities, Investment & Payment Products, Kotak Mahindra Bank.
“At Kotak, we are focused on savers as much as on borrowers. Just as we’ve increased our retail fixed deposit rates, we continue to offer up to 6% interest rate to our savings bank customers,” he added. Another private sector lender, Yes Bank has also increased term deposit rates by 5-10 bps in various buckets. In both 46-90 days and the 3-6 month tenures, rates have risen 10 bps to 6.85% and 6.9% respectively. This is the first time in almost three years that banks have increased deposit rates. The current rate-easing cycle started with the Reserve Bank of India cutting interest rates in January 2015. RBI has reduced interest rate by 200 bps between January 2015 and August 2017. In the policy meetings in October and December, the RBI had maintained status quo. The key policy rate, the repo rate, is now 6%. Growth in bank deposits has slowed considerably recently.
RBI data showed year-on-year deposit growth slowed to 4% as on December 22 from 11.8% on March 31. Credit growth, on the other hand, rose to 10.7% compared with 5.1% in March.
Inflation concerns
Inflation too has risen. Retail inflation measured by the consumer price index, which the RBI uses for policy purposes, accelerated to 4.88% in November due to rising food and oil prices as compared with 3.58% in October. Most bankers have ruled out any further cut in interest rates by the RBI.
They also ruled out a rate increase any time soon. The market expects rates to stay steady for 4-5 months.
