Banks including RBL Bank, Punjab National Bank, Bank of India and Yes Bank are trying to lure more customers by offering new deposit schemes and higher interest rates in a bid to keep up with credit growth.
Mumbai-based RBL Bank launched a smart deposit scheme, a flexible term deposit, on January 24, offering interest of 7.55 to 8.3 percent for a tenure of 15 months. This scheme offers flexibility in savings and investment options.
Public sector lender PNB introduced a 666-day special fixed deposit scheme on December 25, offering interest ranging from 6.1 percent to 8.1 percent across customer segments.
Bank of India started a new 444-day deposit scheme earlier this month, offering interest rates of up to 7.55 percent. The bank also came out with a Star Super Triple Seven Fixed Deposit scheme for a single tenure of 777 days, offering an interest rates of 7.25 percent to 7.75 percent.
Deposit growth has been lagging advances and although banks have started offering high interest rates on deposits, they are still behind the increase in the central bank’s repo rate. According to an India Ratings report, deposit growth muted at 9.2 percent on-year as of December 30.
Q3 deposit growth
The new schemes appear to be working, as reflected in the rise in deposit growth of banks during the October-December quarter. Most banks recorded year-on-year and quarterly growth in customers seeking to invest in fixed deposits.
Some banks said customers shifted funds from their current and savings accounts to fixed and other deposit schemes that offered higher interest rates.
“In the past few months, people have been investing more in mutual funds compared to conventional financial options like FDs. This has pushed banks to work on the deposit front and hike rates,” said Sakshi Gupta, chief economist at HDFC Bank.
South Indian Bank said it is constantly working on the deposit front.
“We are keeping a close eye on the market situation around demand for deposits. Our bank officials meet at least three to four times a month to discuss and plan our deposit business,” managing director Murali Ramakrishnan told Moneycontrol.
Even non-banking financial companies are working on offering flexible interest rates on various deposit schemes. These financial institutions offer interest rates in the range of 6 percent to 9 percent, and some have schemes with interest rates touching 9.5 percent.
Shriram Finance offers interest rates of up to 9.3 percent on FDs. Bajaj Finance offers up to 8.1 percent across tenures and customer segments.
The wide difference between credit and deposit growth is a key reason for banks trying to attract funds. Experts said credit growth has shot up in recent months as the economy recovers, while deposit growth has lagged.
Rate-hike cycle
Gupta of HDFC Bank said due to low liquidity and high demand for credit, banks will primarily focus on their deposit business for some months.
“Banks would work on hiking interest rates on deposit schemes but only in nominal figures as the Reserve Bank of India will end its rate-hike cycle in February. After this, one could see a moderation in credit growth,” Gupta said.
The RBI has increased the repo rate – at which it lends to banks – by 225 basis points since May 2022 to fight soaring inflation.
Growth in credit offtake moderated to 14.9 percent on-year for the fortnight ended December 30, from 17.4 percent in the previous fortnight as the benefit of a lower base waned, according to a report by rating company CareEdge
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