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| Banks start offering more for deposits |
| BS Reporter / Mumbai Jul 29, 2010, 00:02 IST |
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HDFC Bank, Central Bank of India raise FD rates.
 A day after the Reserve Bank of India (RBI) raised policy rates, a number of lenders, including HDFC Bank, Central Bank of India and Lakshmi Vilas Bank, increased interest rates on fixed deposits.
Bank of India is looking at raising deposit rates by 25-50 bps, according to a senior bank executive, while Corporation Bank CMD J M Garg said the bank was likely to increase deposit rates across all maturities shortly.
Axis Bank is also reviewing its deposit rates.
RBI yesterday raised its short-term lending and borrowing rates by 0.25 per cent and 0.50 per cent, respectively, to put a lid on inflation, which is in double digits.
The repo rate, at which banks borrow from RBI, was increased to 5.75 per cent and the reverse repo rate to 4.50 per cent.
OP Bhatt, chairman of the country’s largest lender, State Bank of India (SBI), said deposit rates for the system were likely to climb as early as next month.
“There is an upward bias in deposit rates. (Rates should move up) by August-September by at least 0.25 per cent,” Bhatt told reporters on the sidelines of an event in Mumbai on Wednesday.
The country’s second largest private sector lender, HDFC Bank, raised interest rates on three maturities by 25-75 basis points effective July 30.
Public sector lender Central Bank of India has raised term deposit rates by 25-50 basis points across select maturities effective August 1 while private sector lender Lakshmi Vilas Bank has raised rates for term deposits of 181 days up to two years by 25-50 bps. This will be with effect from August 2.
The pace of deposit growth for the banking system has been slower than credit growth since the beginning of the current financial year and is beginning to worry bankers.
In the fifteen days up to July 17, depositors withdrew Rs 40,867 crore from banks, puling down the year-on-year growth in deposits to 14.55 per cent.
RBI is concerned about the sluggish growth in deposits and has been prodding banks to beef up deposit mobilisation.
“Deposits have gone down because public sector companies, particularly oil companies, have been withdrawing money, mutual funds have been withdrawing deposits and the public has been choosing to hold cash instead of putting it in deposits in expectation that interest rates are going to go up,” RBI Governor D Subbarao told reporters at a post-policy press conference yesterday. “We expect that to reverse because an 18 per cent growth (in deposits) is important for other variables,” he added.
In the coming days, more banks are likely to raise deposit rates.
“Deposit rates are likely to go up. We are going to review our deposit rates soon,” Shikha Sharma, managing director and CEO of Axis Bank, told reporters on the sidelines of a conclave in Kolkata on Wednesday.
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