New Delhi: In the current cycle of monetary policy tightening, the Reserve Bank of India’s (RBI’s) six-member monetary policy committee (MPC) has hiked the repo rate, the rate at which banks borrow from the apex bank, by 190 basis points (bps). Consequently, banks have increased their lending rates swiftly passing on the burden to borrowers by increasing the lending rates.
While lenders have hiked deposit rates across various tenures, the transmission has been either slow or not kept up pace with the lending rate hike.
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Currently, banks are enhancing the returns offered under small savings schemes such as Kisan Vikas Patra and public provident fund (PPF), which range between 6. 9 per cent and to 7. 1 per cent. Small saving schemes, however, still have an edge for taxpayers.
Pankaj Bansal, Chief Business Officer, Bankbazaar.com, said: “The transmission of rate hikes to fixed deposits (FDs) is slower and may not be 100 per cent, but FD rates are still expected to see an uptick due to reduced liquidity and rise in key policy rates. We anticipate that the rates may go up to 8-9 per cent but the probability of the interest rates going any further up is low.”
As per a circular issued by the Finance Ministry on September 29, the interest rates of three small saving schemes have been increased by 10 bps to 30 bps, for the October-December 2022 quarter. Interest rate of Senior Citizen Savings Scheme has been hiked by 20 bps to 7.6 per cent and Kisan Vikas Patra has been hiked by 1o bps to 7 per cent.
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Banks are enhancing deposit rates as they are witnessing a wedge between deposit and credit growth. In the current fiscal, banks have added Rs 9. 7 lakh crore to their loan books, while their deposits have grown by Rs 8 lakh crore. Although credit growth surpasses the hike in deposits, lenders are not aggressively hiking deposit rates and are offering limited period schemes as they believe the liquidity position to improve, according to a report in the ToI.
State-run Bank of India (BoI), for instance, has been providing competitive interest rates on all its FDs. Additionally, the lender has hiked the interest rate on its existing 555-day FD scheme to 6.30 per cent.
BoI has announced a limited-time offer where depositors can get an interest rate of 7. 25 per cent (7. 75 per cent for senior citizens) on a deposit for 777 days.
At present, banks are holding excess investments in government securities, which gives them leeway to raise their loans without increasing deposits. However, if the pace of credit growth continues into the third quarter, banks are expected to increase their regular deposit rates further, the daily mentioned.
On Wednesday, Bank of Baroda announced its Baroda Tiranga Plus Deposit scheme providing higher interest of 7. 25 per cent to senior citizens and 6. 75 per cent to others.
Canara Bank has launched a special fixed deposit plan for a period of 666 days. According to this plan, the bank offers 7. 5 per cent interest to senior citizens. For others, the rate of interest on these deposits is 7 per cent.
IDBI Bank has announced a festive offer on its ‘Amrit Mahotsav’ deposits, giving 6. 9 per cent interest rate for a special bucket of 555 days as a limited-period offer.
Recently, State Bank of India (SBI), HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank among others have hiked interest on term deposits.
