Deposit rates have increased over 100 basis points in the last ten days as banks are getting aggressive to mobilise resources to fund the growing demand for loans in the busy season. In the last ten days, at least five government banks have increased deposit rates and more are expected to follow suit.
Mangalore-based Corporation Bank has raised deposit rates 75 to 100 bps in various maturities. “We have hiked the deposit rate 75 to 100 basis points on various maturities. Liquidity is an issue in the banking system now and we need resources. We are aggressively campaigning to mop up deposits by doing road shows and outreach programmes,” said Ramnath Pradeep, chairman and managing director of Corporation Bank. The new rates are applicable from today. Andhra Bank has effected deposits rate hikes from Wednesday, and offering 8.25 per cent for 1000 days.
New Delhi-based Oriental Bank of Commerce and Mumbai-based Union Bank of India have also hiked deposit rates in the past one week.
| RATE WAR |
| Andhra Bank 8.25% for 1000 days |
| Corporation Bank 8% for 9-month to less than 12-month |
| Union Bank of India 7.75% for 500 days |
| Oriental Bank of Commerce 7.55% for 400 days and 7.75% for 775 days |
| Central Bank of India 8% for 555 days |
| Note: Recent offers on by some banks on retail deposits Source: Banks |
Central Bank of India, which has increased deposit rates 25-50 basis points and is now offering 8 per cent for 555 days, has already raised Rs 500 crore in ten days since the scheme was launched. According to a Central Bank official, the bank is aiming to garner Rs 3,000 crore to Rs 4,000 crore from this scheme by December 31.
Growth in deposits in the current financial year has been the sluggish, and far below the Reserve Bank of India (RBI) projection of 18 per cent. What is more worrying is that the outstanding deposit in commercial banks fell by Rs 65,000 crore for the fortnight ended November 5, as compared to the previous fortnight. According to latest RBI figures, deposits registered 15.23 per cent year-on-year growth to Rs 48,10,227 crore.
The softer interest regime which prevailed for most part of 2009 and till middle of 2010, had made deposits unattractive. Inflation rate is still near double digit mark, and real returns to depositors continue to be negative. RBI, during its mid-quarter review of monetary policy in September, cautioned banks that low deposits growth could hamper loan demand.
“One important consequence of negative real rates is that banks have seen a deceleration of deposit growth, as savers look for higher returns elsewhere. If bank credit is not to become a constraint to growth, real rates need to move in the direction of encouraging bank deposits,” RBI had said. Now, more banks are expected to join the rate hike bandwagon to stay competitive.
“The pressure is building up on the liabilities side due to tight liquidity conditions. Large amounts have moved to public offerings. Now funds will also be sucked out of the system for payment of third tranche of advance taxes in the middle of December. This would compel us to revise their deposits rates,” said Alok Misra, chairman and managing director of Bank of India. Banks are mindful of the fact that the rise in deposit rate could dent their margins. Though no banks are contemplating to hike lending rates at this point in time, but indicate they have to increase lending rate, sooner than later, if net interest margin needs to be protected.
