Banks rush to hike deposit rates, raise funds amid firm loan growth

Major private lenders such as HDFC Bank, ICICI, Axis revise rates; deposit rates now catching up with RBI rate hikes

Faced with a steep gap between growth in credit and that in deposits, banks have made a beeline to raise deposit rates and raise funds. Major private lenders HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank have all announced revised rates on Wednesday.

IDFC First Bank, Equitas Small Finance Bank and AU Small Finance Bank have also announced revised deposit rates over the past few days, with analysts now saying that bank deposit rates were finally moving in line with the Reserve Bank of India’s policy rate hikes.

HDFC Bank, India’s largest private bank, has hiked rates by 75 basis points to 7 per cent for deposits of less than Rs 2 crore, that mature between five-years plus one day, and 10 years.

The bank has also hiked rates on various other deposit brackets by 50 bps to 7 per cent. These include (a) deposits maturing between 15 months and less than 18 months, (b) those maturing between 18 months and less than 21 months and (c) those maturing between three years plus one day and five years. The peak rate that the bank is offering for senior citizens is 7.75 per cent for deposits maturing between five years plus one day and 10 years.

“HDFC Bank has increased deposit rates by 210 bps from the bottom, now (they are) at a three-year high. HDFC Bank’s deposit rates have gone up 210 bps to 7 per cent in the past two years in the critical 1-3 year bucket where the bulk of inflows happen, and now they are at a three-year high. Deposit rates are now catching up with RBI rate hikes,” Macquarie Research wrote. RBI has hiked rates by 225 bps so far in 2022.

“HDFC Bank usually maintains a slight premium to SBI and hence the current deposit rates are in line with what SBI is offering,” Macquarie wrote. On Tuesday, SBI raised term deposit rates by 15-100 bps.

Effective Wednesday, ICICI Bank is offering deposit rates in a band of 4.25-6.90 per cent for deposits worth between Rs 2 crore and less than Rs 5 crore. The peak rate of 6.90 per cent that the bank is offering is for regular deposits maturing between one year and 389 days and for those maturing between 390 days and less than 15 months.

Also effective Wednesday, Axis Bank is offering a maximum rate of 7.20 per cent for regular deposits worth Rs 2 crore to less than Rs 5 crore, maturing between one year and less than one year and five days. It is also offering 7 per cent on a host of other deposit brackets, including those maturing between 13 months and less than 14 months, and those maturing between two years and less than 30 months.

Kotak Mahindra Bank is offering a maximum rate of 6.75 per cent for regular deposits worth less than Rs 2 crore in four maturity brackets. These include (a) 365 days to 389 days, (b) 390 days to 23 months.

Meanwhile, Equitas Small Finance Bank is offering a peak rate of 8 per cent effective Wednesday, for deposits worth less than Rs 2 crore and maturing in 888 days.

On Tuesday, AU Small Finance Bank hiked its peak fixed deposit rate for regular retail deposits by 25 basis points to 7.75 per cent.

Latest RBI data showed that as on November 18, bank credit growth was at 17.2 per cent year-on-year, while deposit growth lagged far behind at 9.6 per cent.

According to Bank of Baroda’s research team, term deposit rates of more than one year rose to 6.68 per cent in November from 6.25 per cent in October and 5.70 per cent in September.

The one-year Marginal Cost of Funds based Lending Rate (MCLR) of banks rose to 8.05 per cent in November from 7.90 per cent in October and 7.75 per cent in September, the bank wrote.

“A rise in deposit rates in isolation may be a concern but a rise in deposit rates together with rise in yield on advances is not a concern,” Ashutosh Khajuria, executive director, Federal Bank said.

“For the banking system now a healthy credit-deposit ratio would be 80 per cent plus. The system is still to move towards above 80, it is at 76 or 77 per cent,” he said. Banks have reported firm profits in the previous quarter as they have been much quicker to pass on the RBI’s rate hikes to loans than deposits.

Going ahead, however, Macquarie Research expects banks' margins to plateau. “We believe, with deposit growth running well below loan growth and deposit rates inching up rapidly, margins will peak out by 3QFY23 and will start heading down in 4QFY23,” the firm said. 

Meanwhile country’s largest lender State Bank of India (SBI) has hiked its marginal cost of funds-based lending rate (MCLR) by 15 – 25 basis points (bps), effective December 15. 

The overnight MCLR has been hiked by 15 bps to 7.85 per cent, while one-month to three-year MCLR have been hiked by 25 bps. Accordingly, the one-month to three-year month MCLR will range between 8 per cent to 8.60 per cent. This comes after the six-member monetary policy committee (MPC) raised the repo rate by 35 bps in the recently concluded meeting. The repo rate has been hiked by 225 basis points since 225 bps since May.