Three banks raise deposit interest rates in a bid to meet credit demand

Three banks have increased deposit interest rates in certain maturity buckets within two weeks of the new quarter (Q3FY24) to mobilise resources to meet credit demand.

Bank of Baroda (BoB) has raised interest rates on domestic retail term deposits, including NRO (non-resident ordinary) and NRE (non-resident external) term deposits, by up to 50 basis points across various tenors up to three years. These rates apply to deposits below Rs 2 crore, effective from October 9, 2023, according to a BoB statement.

Pune-based Bank of Maharashtra (BoM) has increased interest rates by up to 125 basis points in select buckets. It revised the rate for a tenure of 46-90 days by 125 basis points to 4.75 per cent from Thursday.

Mumbai-based Unity Small Finance Bank carved out a special deposit scheme of 701 days from the 18 months-1,000 days bucket carrying a 7.4 per cent rate per annum. Now, the 701-day deposit scheme would attract a rate of 8.95 per cent, effectively increasing the rate by 155 basis points.

Bankers have stated that rates have been adjusted in some tenures to align with market rates, given the competition to attract more money into deposits.

Banks garnered significantly more funds in the first six months of the current financial year (H1FY24) compared to the same period in FY23. Data from the Reserve Bank of India showed that commercial banks raised Rs 10.89 trillion until September 22, 2023, in FY24 against Rs 5.66 trillion in the same period in FY23. The growth rate was 6.8 per cent on a year-to-date basis until late September 2023 against 3.4 per cent a year ago.

The RBI's Monetary Policy Report stated that across tenors, the maximum increase was observed for shorter maturities (up to 180 days). The increase in term deposit rates in the current tightening cycle has exceeded that in lending rates (both in terms of fresh and outstanding deposits). However, savings deposit rates of banks -- which are a third of total deposits -- have remained almost unchanged, while current account balances (share of 9.6 per cent in total deposits) earn no interest.