The country’s second-largest private sector lender, HDFC Bank, today increased fixed deposit (FD) rates across nine maturities by 25-150 basis points (bps)—the sharpest and widest increase by any bank so far.
The rate hike comes three weeks after the third-quarter monetary policy review of the Reserve Bank of India (RBI), when the central bank increased the cash Reserve ratio by 75 bps.
“Our rates were lower than some banks, especially for the long term. Now, in a scenario where rates are likely to go up for the system as a whole, we have decided to align our rates with the market to be as competitive as anyone else,” said Ashish Parthasarthy, treasurer, HDFC Bank.
The bank’s three FD slabs, with maturity between three and 10 years will now earn 7.5 per cent interest against the earlier 6 per cent.
Interest rate for term deposits between two and three years has been raised by 100 bps to 7 per cent from 6 per cent rate.
At the same time, the rate for FDs with a tenor of 366 days to two years has been increased by 50 bps to 6.5 per cent, except for the one year 16 days maturity offering 6.75 per cent rate, according to the bank’s website.
Another important reason for rate hike is the declining liquidity position as reported by several banks, including the country’s biggest lender, State Bank of India (SBI). A senior SBI executive said the extent of excess resources with the bank had declined substantially due to an increase in credit offtake. Till December-end, the bank had excess funds of Rs 75,000 crore.
“Going forward, competition among banks for resources will intensify. The interest rate on deposits will move up. The first one to move will be private sector banks,” he added.
The RBI move to hike the percentage of funds banks are required to hold as reserves with the central bank is expected to take out Rs 36,000 crore from the banking system.
The increase in CRR comes in two tranches. The first hike of 50 bps to 5.5 per cent has become effective from February 13. While, the second increase of 25 bps will apply from the fortnight beginning February 27. Last week, IDBI Bank raised deposit rates by 0.25 per cent across various maturities and also introduced a new 500-day slab with offering a rate of 7 per cent.
