With less than a month left to close their books for FY11 accounting, banks are further hiking interest rates to mobilise deposits in order to ramp up their balance sheets.
Bank of India (BoI) raised interest rates on deposits across various maturities by 25 to 175 basis points effective from March 10, 2011. The bank’s peak rate is 9.25 per cent for the 555-day deposit. BoI has been revising upwards the interest rates on deposits each month since November 2010 while the special scheme of 555 days was introduced in January 2011.
Another public sector lender, Allahabad Bank, has hiked the interest rates on term deposits below Rs 1 crore for a fixed period of 450 days at 9.25 per cent effective from March 10. The bank had raised its deposit rates in the months of January and February too.
Banks have been offering attractive interest rates to lure more and more retail customers for nearly two quarters now. Most banks, including State Bank of India and ICICI Bank, are offering interest rates close to 9.5 per cent on term deposits. As a result, some improvement was seen in the deposit growth rate even though it lagged far behind the growth in credit offtake.
According to the figures published by the Reserve Bank of India (RBI), deposit growth clocked 16.9 per cent as on February 11, 2011 as compared to a year ago. Credit growth for the same period was 23.9 per cent, far above the RBI’s projection.
The RBI had projected deposits to grow at a pace of 18 per cent and bank advances to grow by 20 per cent in financial year 2010-11. In its third quarter review of monetary and credit policy in January, the central bank had raised concerns over the widening gap between bank deposits and advances. It had strongly indicated that banks should curtail lending if they were not able to mobilise long-term resources.