Banks woo depositors with double-digit rate
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Feb. 7: At a time when stock markets are in a disarry, fixed deposits with banks were already looking attractive. More so now because of the recent hikes in interest rates — with some banks even offering double-digit returns.
To attract depositors, some of the old generation private sector banks have started to offer interest rates higher than 10 per cent on some deposits. Most of the large banks are now offering nine per cent and above on fixed deposits of certain tenure.
Given the current economic situation, including the high inflation rates, most observers expect interest rates to rise further in the next 3-6 months. One disadvantage of fixed deposits is that the interest is taxable so the effective return for the depositor can be lower depending upon the tax slab. However, for senior citizens and those living on fixed incomes, this is clearly a welcome development.
Last Friday, Karur-based Lakshmi Vilas Bank announced an interest rate of 10.1 per cent on fixed deposits of one or two year duration. Things are even better for senior citizens who can get 10.25 per cent.
From the customers point of view, the good news doesn’t end here for customers. Neighbouring Karur Vysya Bank is now offering a return of 10.25 per cent on a 555 day deposit. The rate for senior citizens is even higher. Even India’s top banks such as State Bank of India, ICICI Bank and HDFC Bank are currently offering nine per cent on some deposits.
“With the State Bank group and other nationalised banks offering nine per cent on deposits, we need to offer more to draw in depositors,” says an official working with one of the small banks. Other small private sector banks such as Karnataka Bank, Development Credit Bank and City Union Bank are all offering rates of 9.5-10 per cent on deposits of specific duration.
Banks are expected to raise rates even more in the coming months in order to bridge the gap between credit growth and the growth in deposits. According to the Reserve Bank of India, the credit rate has grown much faster than the deposit growth leading to liquidity tightness.
The RBI governor, Dr D. Subbarao, had in the third quarter review of monetary policy 2010-11 on January 25 asked the banks categorically to focus on what he called the underlying structural cause of liquidity tightness arising out of the gap between the credit and deposit growth rates. Hence the race by the banks to attract deposits.
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