Small savings rates dent Dena Bank deposit growth

The heat of competition for deposits has made a dent in state-owned Dena Bank's resources mobilisation. And the blame falls on the higher interest rates offered by the government on small savings instruments.

The Mumbai-headquartered banks' deposit in the current year so far have grown at a rate far less than the growth target of 20 per cent for 2005-06. The savings and current account deposits have grown by 17 per cent and 12 per cent, respectively.

"However, we do not see any rise in interest rate - both lending and deposits - in next three-four months. The bank may realign the interest rates in certain maturity brackets based on business requirements," Dena Bank chairman M V Nair said.

There is a need to realign interest rate structure of small savings' instruments. They have affected Dena Bank's deposit mobilisation efforts, Nair said.

The interest rates on the domestic deposits range from 3.75 per cent at the short end to six per cent for deposits with five to 10 year maturity bucket. The savings account rate, which is still administered by the Reserve Bank of India, is 3.5 per cent.

The interest rates on the small saving instruments like postal deposits currently rule over seven per cent. Dena Bank's total deposits as on September 23, 2005 were Rs 21,000 crore.

The bank plans to increase fee-based income through sale of third-party products and today announced a tie-up with ICICI Prudential Mutual Fund. The bank would distribute mutual fund products through 80 branches.

It will also launch wealth management services soon.

Initially, the service would be provided to high networth individuals.