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As banks’ chase for customers to collect cheap deposits is not fructifying, they are forced to offer inflation-beating real interest rates on fixed deposits now, and State-run banks led by Punjab & Sind Bank tops the chart offering 8-8.50% per annum deposit rate.
Banks are forced to offer inflation-beating deposit rates for a tenor ranging from 200 to 800 days as credit growth has been far outpacing deposit mobilization throughout this fiscal, leading to a funding crunch.
Also read: Huge increase in post-office savings bank interest rates
Even at the lowest 7%, fixed deposit pricing is positive for customers because even after a surprise spurt in retail inflation for January at 6.52%, the real rates are in the green.
Inflation has been over 6% for 10 months of 2022 forcing the Reserve Bank to increase rates by 250 bps to 6.50% through six consecutive hikes beginning May 2022.
For the fortnight to January 13, 2023, credit growth rose 16.5% annualised as against 10.6% growth in deposits. In fact, for almost the entire year, deposit growth has been in the mid-single digit and the recent spike is due to an increase in deposit rates since December.
The rates are better even from other angles, too, as one-year post office deposit fetches 6.6% and 6.8% for two years, while 10-year government securities yield just 7.35%.
The high rate offering also comes as banks have almost fully passed on the 250-bps hike in RBI rate since May last year to their borrowers, they’ve not been doing so for deposits, leading to a funding gap and forcing them to borrow from the market.
According to the new deposit pricing, on average any depositor of a public sector bank is assured of 7 to 7.25% for fixed deposits for a tenor ranging from 200 days to 800 days.
The nation’s largest lender State Bank of India, which has the largest retail franchise with around 20,000 branches, is offering 7.10% for the general public and a higher 7.60% to senior citizens on an annualised basis for fixed deposits in the 400 days bucket.
Punjab & Sind Bank is offering the highest at 8% to retail depositors, and 8.50% to senior citizens for the 221-day bucket.
The Central Bank of India gives the second best rate at 7.85% to senior citizens for 444 days and 7.35% to retail, while Union Bank of India is pricing its 800 days deposits at 7.30% and 7.80% for retail and senior citizens.
Punjab National Bank is offering retail and senior citizens, respectively, at 7.25% and 7.75% on its 666 days bucket, Bank of Baroda’s new pricing comes at 7.05% and 7.755% for 399 days; Bank of India is offering the same rate as that of Bank of Baroda for 444 days, while Bank of Maharashtra’s new rate is 7% and 7.50% for 200 days.
For 400 days, Canara Bank is offering 7.15% and 7.65%; Indian Bank is paying 7% and 7.50% for its 555 days deposits; UCO Bank comes at 7.15% and 7.25% for 666 days; and Indian Overseas Bank is offering 7% and 7.50% for 444 days.
On the other hand, the largest private sector lender HDFC Bank offers only 7% to the general public and 7.50% to senior citizen depositors for five years, while its immediate peer ICICI Bank gives 7% for more than 15 months to retail and 7.5% to senior citizens for over 15 months.
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