ICICI Bank ups deposit rates

ICICI Bank, the country’s largest private sector lender, has raised deposit rates on select maturities. It is the second bank to do so since the start of the month.

The bank has raised the interest rate on deposits maturing in 270 days to less than one year by 25 basis points to 5.75 per cent for deposits of Rs 15 lakh to Rs 1 crore. The new rates are effective from January 8. The country’s largest lender, State Bank of India, offers 5.25 per cent on comparable deposits.

A fortnight ago, public sector Union Bank of India set the ball rolling by raising the interest rate on one-year to two-year deposits by 75 basis points.

While ICICI Bank did not give any reason for the increase, Union Bank said it took the step to avoid any asset-liability mismatch. Banks have started raising deposit rates after a gap of 12 months.

“This is for practical adjustment purposes. Sometimes, you need funds for a particular tenure and need to tweak rates to raise these funds. This is not a directional move and does not signal any correction or revision in rates,” said an ICICI Bank executive.

Bankers said other banks would also selectively increase deposit rates in the coming weeks. If deposit rates harden, banks may be forced to raise lending rates to kept their margins intact. Bankers have, however, said that lending rates were unlikely to rise till the end of the financial year, as credit demand was low and there was abundant liquidity.

With deposit rates offered by banks dropping to 6 per cent and less, deposit mobilisation is mainly taking place in the one-year maturity basket. As a result, fresh deposit mobilisation by banks has slowed. Deposit growth, estimated at 22.10 per cent for the one-year period ended April 10, 2009, dropped to 17.58 per cent for the year to January 1, 2010.