After State Bank of India, ICICI & HDFC Bank slash deposit rates

Following the country’s largest lender State Bank of India (SBI), banks have begun to cut interest rates on deposits.  On Thursday, two large private lenders - ICICI and HDFC Bank - did so by 15-25 basis points (bps) in different maturity buckets.

HDFC Bank reduced the rate on term deposits above Rs 1 crore by 25 bps across categories. The decision reflects a rise in deposits, banking sources said.

ICICI Bank reduced the rate on term deposits by 15 bps for the maturity bucket of 390 days to two years. The new rate is 7.1%.  

At IDBI Bank, the panel which decides on interest rates is meeting on Friday. “The money flowing into accounts (savings and current) after the decision to scrap Rs 500, Rs 1,000 notes as legal tender has been huge. What do we do with the surplus liquidity?” asked a bank senior.  

Bankers said rates are expected to reduce by up to 50 bps over the next few months. SBI had decided to cut by 15 bps on term deposits between one year and three years.

Public sector bank executives said more rate cuts – on deposits and subsequently on loans – are in the offing. SBI has an excess statutory liquidity ratio of 5.5 percentage points over the minimum required. According to Reserve Bank of India (RBI) data, banks parked Rs 2.48 lakh crore with the central bank at the reverse repo window on Wednesday, and Rs 1.80 lakh crore a day before. 

Deposits have grown by 9.8% in the 12 months till October-end, at Rs 99,839 crore. The growth in the earlier 12 months was 10.5%, said RBI.

Apart from the post-demonetisation inflow, credit growth is not picking up.  Excess money is being parked in the bond markets but yields have fallen there.

Credit expanded by 9.1% for the 12 months ended October, up from 8.8% a year before, RBI said.