Public sector banks have signalled a fresh round in the deposit rate war with a hike in rates by 200-300 basis points in a bid to push up deposit mobilisation before the financial year comes to a close in another six weeks.
Banks like the Oriental Bank of Commerce (OBC) and the Syndicate Bank have launched a frontal attack on the deposit mobilisation plans of other banks by last week announcing the highest short-term rate of 12.5 per cent (for up to 90 days) among PSU banks.
Prior to the recent revision, most PSU banks offered about 7-8 per cent interest on an average for deposits up to 90 days.
Punjab & Sind Bank, one of the Delhi-based banks that is in direct competition for deposits from OBC, also based in the capital, was the first to revise its interest rates on Saturday by bringing it at par with the highest offered by PSU banks.
Bankers said they expected several other banks to revise their short-term deposit rates during the coming week in a bid to discourage the flight of deposits from their banks.
Punjab & Sind Bank chairman and managing director S S Kohli told Business Standard that the bank was forced to raise its short-end rates as some of the PSU banks are snatching away deposits from us.
Other public sector banks are likely to follow suit. The idea being to protect a flight of deposits from their bank, and secondly, with a few weeks left for the fiscal to end, all the banks are trying to increase their deposits mobilised during the current year by as much as possible, said a PSU banker.
Punjab & Sind Banks Kohli said: We were forced to raise our rates because our field functionaries gave us the feedback that they are finding it difficult to mobilise deposits with other banks offering higher rates. But I do not think the high rates will prevail for long.
Bankers also suspected that some PSU banks were facing short term liquidity problems, saying that this could be another reason for the sudden increase in the short-term rates. We understand that for some banks, a sizeable amount of deposits are maturing at this time of the year. So they are raising short term deposits to redeem those deposits.
High rates for deposits up to 90 days offered by other PSU banks currently include Bank of India (9.5 per cent), Canara Bank (9 per cent), Corporation Bank (11 per cent), Dena Bank (9.5 per cent), Indian Bank (9 per cent) and Union Bank of India (9.5 per cent).
