Union Bank ups term deposit rates 25-50 points

State-owned Union Bank of India will raise retail term deposit rates by 25 to 50 basis points with effect from Monday, the bank said on Saturday.

Deposits of less that Rs 1 crore will be offered 6.5 per cent for one-year maturity, which is an increase of 50 basis points over the existing rate. For 2-, 3- and 5-year maturities, the bank will offer 7 per cent, 7.25 per cent and 7.50 per cent, respectively, which is 25 basis points higher than the existing rates.

This is the second instance in about three months that the bank has increased its deposit rates. In January, it had launched a deposit scheme offering 6.75 per cent for 555 days’ maturity, which was an increase of 75 basis points over the existing rate.

“We see a need for mobilising resources for long-term funding like infrastructure projects. We also anticipate credit picking up in the current financial year as companies will start investing to add new capacity,” M V Nair, chairman and managing director of Union Bank, told Business Standard while explaining the reason behind the rate increase.

With deposit rates hitting almost the bottom, most banks are seeing deposit mobilization in shorter maturities. Some banks have pointed out that about 70 per cent of the fresh deposits are of 1-year tenure, while the demand is coming mainly from infrastructure and housing loans which are for 15 to 20 years’ maturity.

Union Bank, however, ruled out any increase in lending rates for the time being.

“The current hike in deposit rate can be absorbed by the present benchmark prime lending rate structure,” another senior executive of the bank said. The benchmark prime lending rate of Union Bank is 11.75 per cent.

In addition, since the new base rate system will kick in from July, the bank does not want to tinker with lending rates at the moment.