BoB's new deposit scheme offers 7.1-7.6% interest on short-term deposits

Public sector lender Bank of Baroda on Monday announced a new deposit scheme offering interest payments in the range of 7.1-7.6 per cent per annum.

Bank of Baroda in a statement said its special short-term retail deposit scheme offers an interest rate of 7.60 per cent annually for senior citizens and 7.10 per cent for others. The scheme opened on Monday and is applicable on retail deposits below Rs 2 crore.

The bank had been offering 6.25 per cent for 271 days bulk deposits earlier.

Existing and new customers of the bank can open this bulk deposit scheme, called the BoB360, at any branch, online or through the mobile app.

Banks are offering higher interest on deposits as more and more people are investing in mutual funds and stock markets which are offering better returns than bank deposits. The flight of money out of the banking system can lead to asset-liability mismatches in banks' books.

This had the Reserve Bank recently warning banks about a likely crisis as when the policy rates are high and normal bank deposits are low, ?as low as 2.7 to 3 per cent on savings bank deposits, banks offering higher prices for long-term bulk deposits can eat into their profits in the long run, especially when policy rates fall.