Banks have finally started correcting their liabilities, profile and are now offering higher rates for long-term deposits.
Banks' deposit profiles had tilted more towards the shorter end and 60-70 per cent of deposits in the one-year maturity period had resulted in widening of the asset-liability gap, as credit off-take was mostly seen in term loans, which have a tenure of five-seven years.
State Bank of India (SBI), the country's largest lender, now offers 9.25 per cent for deposits with a maturity period of one-10 years. Bank of Baroda, which launched a revised deposit rate scheme on Tuesday, offers 8.5 per cent for deposits maturing between three and 10 years and nine per cent for one-three years, except for 444 days, for which it offers 9.35 per cent. Union Bank of India offers 9.4 per cent for five-year retail deposits, while for one-five year maturities, it offers 9.25 per cent.
The special deposit schemes of banks, which offered higher rates on tenures like 555 days or 1111 days, was also responsible for the accretion of deposits on select maturities, according to bankers. “We found deposits were mostly flowing into 555-1,000 day segments, which offer the peak interest rate of 9.25 per cent. Deposits in higher maturities were negligible. This could create problems of maturity, since the bank would have to bear redemption pressure,” said a senior SBI official, explaining the reason for tweaking the deposit scheme and adding the bank was experimenting with this new deposit mobilisation model.
A senior Union Bank of India official said the bank's move to keep long-term deposits attractive was aimed at correcting the asset-liability profile.
The high interest rate of long-tenure deposits may also come with the cost of interest rate cycle changes, caution analysts. “High cost and long-tenor deposits may impact a bank's profitability if interest rates come down in the long run and credit growth slows,” said Abizer Diwanji, head (financial services), KPMG.
For short-term deposits, banks have now realigned the maturity profile to attract deposits, which are parked in mutual fund schemes from corporate clients. SBI has clubbed three maturities into one of 7-90 days, which offers seven per cent. “Cash-rich companies normally invest in mutual funds for short-term benefits, so we increased the interest rate and clubbed the maturities in the shorter end to attract funds from them,” the SBI official said.
