IDBI Bank today increased deposit rates by 25 basis points (bps) and also introduced a new slab of 500 days offering 7 per cent rate.
After Union Bank of India, ICICI Bank and Jammu & Kashmir Bank (J&K Bank), IDBI Bank is the latest to raise deposit rates. But, unlike Union Bank and ICICI Bank, which raised deposit rates for only one bucket, IDBI has offered higher rates across five maturity buckets.
Last week, J&K Bank had increased deposit rates by up to 75 bps for maturities of one year or more. IDBI Bank said it would offer higher rates on term deposits starting February 15.
“This is the right time to raise funds albeit at slightly higher rates, especially in the 500-day bucket, as the liquidity in the system is high. This will help reduce pressure of competition next year, as these deposits would mature in July-August 2011,” said a senior executive of IDBI Bank.
| RATE CARD |
| * In early January, Union Bank introduced new maturity bucket of 555 days offering 6.75 per cent |
| * Effective January 8, ICICI Bank raised the interest rate on deposits of 270 days to less than one-year maturity by 25 basis points to 5.75 per cent |
| * On January 29, RBI announced a two-stage hike in CRR by 75-basis points to 5.75 per cent |
| * Effective February 8, J&K Bank raised rates by 75 basis points for maturity buckets of over 1 year |
“The bank’s dependence on market borrowings has been high. Now, we want to grow the base of a stable source of funds over the next three-four years,” he added. The bank will offer a peak rate of 7.50 per cent on deposits with tenure of 1,100 days, while the new maturity bucket of 500 days will earn 7 per cent a year.
Banks were looking to garner deposits in select maturities, hoping to steal a march over the competition before interest rates in the system rise as a whole, a banker said.
The increase comes along with a 75-bps rise in the cash reserve ratio, or the proportion of deposits that bank set aside. A higher CRR will suck out Rs 36,000 crore from the system.
Deposit flow was healthy during the second fortnight of January with banks mobilising nearly Rs 53,000 crore and the growth during the year till January 29 was 17.09 per cent, marginally short of the Reserve Bank of India’s (RBI’s) projection of 18 per cent for the year.
But other players are unlikely to increase rates, given the low demand for funds. Banks such as State Bank of India are unlikely to opt for an immediate increase, since it had around Rs 75,000 crore of cash.
“There is enough liquidity in the system. Since we are not in a position to raise lending rates due to extreme competition and year-end pressure, I do not propose to increase deposit rates unless the asset-liability committee thinks otherwise,” said Indian Overseas Bank Chairman & Managing Director SA Bhat.
