Special schemes are back in focus as bank deposits continue to grow only at a sluggish pace. With no relief in sight for further monetary policy easing, banks have also increased interest rates on long-term deposits, to garner much needed liquidity.
State-run Bank of Baroda on Monday revised deposit rates upwards by 25-65 basis points (bps). M D Mallya, chairman and MD, said it had realigned the rates, keeping in view the sticky inflation and entrenchment of inflationary expectations. The bank has introduced a term deposit scheme of 1,111 days, offering an interest rate of 9.15 per cent. This is 15 bps higher than the normal term deposit of similar tenors.
Other public sector lenders and small private banks are also offering such schemes, where depositors would have to lock-in funds for an exact number of days. "The only attraction in such schemes is a higher rate of interest as compared to normal deposits of the same tenor bracket," said a general manager of a large public sector bank (PSB).
Central Bank of India raised rates on special deposit schemes by 20-25 bps, effective August 6. UCO Bank extended its schemes till September and also increased the maximum deposit cap to Rs 5 crore. In the past fortnight, PSBs have also realigned the rates offered on deposits up to Rs 15 lakh, on Rs lakh to Rs 1 crore and for Rs 1 crore and above.
In October 2007, the Reserve Bank of India (RBI) had asked banks to withdraw special schemes, as the rates of interest offered on these deposits were not in tune with those on normal deposits.
"No bank should discriminate in the matter of interest paid on deposits, between one deposit and another, accepted on the same date and for the same maturity, whether such deposits are accepted at the same office or at different offices of the bank," it had told banks.
To stay within regulatory limits, some banks exclude the special scheme tenor from the normal deposit bucket. For instance, a bank might offer 50 bps more on a tenor of 1,000 days, as compared to tenors of up to 999 days.
Akeel Master, partner, KPMG, said the trend might not sustain for long, as higher interest rates will have an impact on banks' margins in the absence of a corresponding growth in advances. "Banks that are under pressure from mismatch in asset-liabilities for certain tenors must have been compelled to tweak interest rates accordingly," he said.
RBI’s latest data shows bank advances, as of July 27, had grown 17.2 per cent over a year, while deposit growth lagged at 13.8 per cent .
The central bank has projected deposit growth of 16 per cent in the annual monetary and credit policy for 2012-13.
"Concerns that deposit growth has significantly been slower than credit growth for a prolonged period of time is something we have been watching closely and that was one of the issues we discussed with bankers on Monday," RBI Deputy Governor Subir Gokarn had told Business Standard in an interview after the first quarter policy announcement last month.
He said RBI might put out a projection in the second-quarter policy review to be announced on October 30. It is slated to announce the mid-quarter policy review on September 17.