To offer 6% on deposits above Rs 1 lakh, 5.5% for up to Rs 1 lakh.
Private sector lender Kotak Mahindra Bank has increased its savings deposit rates by 150-200 basis points within a week after the Reserve Bank of India (RBI) de-regulated the interest rate on savings bank deposits.
The Mumbai-based lender will offer six per cent on savings deposits above Rs 100,000 with effect from November 1. For savings deposits up to Rs 100,000, the lender will pay 5.5 per cent interest. The move is aimed to strengthen the bank’s low-cost retail deposit base.
The charges on savings deposit accounts and norms on minimum balance maintenance have been kept unchanged.
“We decided to give higher rates to encourage our customers to save more and get more benefits,” said Uday Kotak, executive vice chairman and managing director. “Going forward, this will no longer be a lazy balance account; it will become an interest-earning account.”
The bank’s current account and savings account deposit ratio to total deposits is 26 per cent. Of this, as of end-September, the current account deposits were about 16 per cent and savings deposits around 10 per cent.
“Savings balances constitute five-six per cent of our balance sheet,” Kotak said. “So, there would be 10-12 basis points implications on the cost of funds.”
On Tuesday, RBI allowed banks to decide on their own the interest rate on savings deposits. The central bank asked banks to pay a uniform rate on savings deposits up to Rs 100,000, irrespective of the amount in the account, but allowed them to offer differential rates on deposits above Rs 100,000.
Banks were paying four per cent interest on savings bank deposits so far.
YES Bank, another private sector lender, has raised its savings deposit rate to six per cent after the deregulation last week. It’s low-cost deposits were only 11 per cent of its total deposits as of September-end.
Apart from raising savings deposit rate, Kotak Mahindra Bank also hiked lending rates by 25 basis points. The bank increased its base rate to 10 per cent from 9.75 per cent and the prime lending rate to 18.75 per cent from 18.5 per cent.
“The decision to hike lending rates is based on factors like increase in savings rate, increase in repo rate announced by RBI in the half-yearly policy review and the overall estimate of cost of funds,” Kotak said.
On Tuesday, RBI had hiked policy rate by 25 basis points. It was the 13th hike since March 2010. Kotak Mahindra Bank’s net interest margins on a standalone basis were 4.7 per cent at the end of July-September quarter. Kotak said the bank would aim at maintaining the margins.
(The Kotak Mahindra group is a significant stakeholder in Business Standard Ltd)