Despite the interest rates having a softer bias, with the central bank indicating rate cuts during the fourth quarter of the financial year, some banks have increased deposit rates by 25-35 basis points on Monday in select maturities.
Federal Bank raised the deposit rate by 25 basis points in 1-3 year domestic term deposits to nine per cent and Dena Bank increased it in the one year and above one year to less than two years bucket by 35 basis points to 9.1 per cent.
According to Abraham Chacko, executive director of Federal Bank, the increase in rates was because of asset liabilities management. While A K Dutt, executive director, Dena Bank, said it increased deposit rates in order to align the deposit rates with other major banks. “Our deposit rates in these bucket were among the lowest so we decided to increase them,” said Dutt.
However, according to experts, the rise in deposit rates is also due to low accretion of deposits. “It is partly due to asset liability management and also due to the fact that banks are finding it difficult to garner deposits,” said Vaibhav Agrawal, vice-president (research), Angel Broking.
Deposit growth in the banking system has dropped year-on-year to 12.76 per cent for the fortnight ended November 30 to Rs 64,42,835 crore. “The liquidity has not been what was expected it to be. The deposit growth has been slow. This (crunch) is not a systematic trend. Some small banks have to manage asset liability dynamics carefully,” said a senior analyst with rating agency Icra.
The tight liquidity is evident from the fact that the daily average borrowing by banks under the Reserve Bank of India’s (RBI) Liquidity Adjustment Facility has been in excess of Rs 1,00,000 crore in the last one month.
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The country’s largest lender, State Bank of India, currently offers 1-2 years term deposits for a rate of 8.50 per cent. But SBI Chairman Pratip Chaudhuri agreed due to lower rates it was becoming difficult to attract deposits.
Deposit accretion will also be challenging in the January-March period, as infrastructure finance companies will come up with a tax-free bond scheme which is seen as a competition for bank deposits. SBI had hinted that if tax-free bonds cannibalise deposits, then banks might have to hike the rates.
Analyst pointed out public sector banks had been reducing the share of high-cost bulk deposits. That has reduced their cost of funds on incremental basis. This offers banks some space to attract retail deposits, which are more stable, by giving better interest rate. This will become more crucial as banks enter crucial last quarter of this financial year.
| INTEREST IN DEPOSITS | ||
| Bank | Tenure | Domestic term-deposit rate (in%) |
| Federal Bank | Above 1-3 years | 9 |
| Dena Bank | 365 days/1 year and above 1 year-Less than 2 years | 9.10 |
| SBI | Above 1 year-Less than 2 years | 8.50 |
| ICICI Bank | 1 year-389 days | 7.50 |
| HDFC Bank | 1 year 17 days-2 years | 8.75 |
| Note: Rates are slightly higher for senior citizens Source: Banks | ||