At a time when interest rates are expected to harden, the country’s largest housing finance company, HDFC, has introduced a monthly deposit plan which offers a floating rate of interest. The rate of interest is linked to the benchmark rate and will be reset at the beginning of each calendar quarter.
“Customers have an option of fixed and floating rates on the loan side. It gives them an option on the deposit side as well. With interest rates expected to rise, this also allows customers to eliminate interest rate risk,” said Conrad D’Souza, senior general manager at HDFC.
Under the new scheme, depositors can select any period between 24 and 60 months and the monthly installment amount ranging from Rs 2,000 to Rs 50,000.
The current interest rates for the plan, effective from February 3, are 7 per cent, 7.25 per cent, 7.75 per cent for 24-35 months, 36-59 months and 60 months deposits, respectively.
The country’s largest public sector lender State bank of India (SBI) offers an interest rate of 6.75 per cent for its 24-36 months fixed deposits (FDs). Its FDs of 3-5 years attract an interest rate of 7 per cent, while 5-8 years FDs attract a rate of 7.25 per cent.
A number of banks such as SBI, Bank of India and Union Bank of India had introduced floating-rate deposits. But most of them have since withdrawn the schemes due to poor customer response. Bank of India used to offer this scheme as recently as September 2009.
“This is the right cycle for investing in floating rate products since interest rates are likely to rise. There is likely to be an appetite for this product among better informed investors,” said Anil Rego, a Bangalore-based financial planner.
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A few banks have already started raising deposit rates on select maturities, signalling an imminent turn in the interest rate cycle. At the beginning of the month, public sector lender Union Bank of India set the ball rolling by raising the interest rate on one-year to two-year deposits by 75 basis points.
ICICI Bank has also raised the interest rate on deposits maturing in 270 days to less than one year by 25 basis points to 5.75 per cent for deposits of Rs 15 lakh to Rs 1 crore from January 8.