HDFC Bank rolls out fixed deposit scheme with higher interest rates

The bank has indicated that it will grow its advances slower than its deposits to bring down its elevated credit-deposit ratio

HDFC Bank, the country’s largest private-sector lender, has launched a special edition fixed deposit (FD) scheme for customers, offering higher interest rates than its peers for tenures of 35 months and 55 months.

The revision in rates comes at a time when the bank is looking to garner more deposits to fund its credit growth.

According to its website, for deposits below Rs 3 crore, the bank is offering 7.35 per cent for 35 months’ tenure and 7.4 per cent for 55 months’ tenure. Senior citizens will receive an additional 0.50 per cent interest over these rates. 

“HDFC Bank hiked deposit rates in certain tenures and buckets within the 1-3 year and also 3-5 year categories by 20 basis points each. As a result, its peak deposit rates in the 1-3-year bucket as of today are 15-35 basis points higher than its peers and 30-65 basis points higher in the 3-5-year bucket,” said Suresh Ganapathy, managing director and head of Financial Services Research.

“As the bulk of deposit flow comes in the critical 1-3-year bucket for banks in India, we believe any deposit rate hike in this bucket without a commensurate increase in lending rates is bound to exert margin pressures,” Ganapathy said.

HDFC Bank’s deposit accretion saw a sequential decline in Q1FY25 to Rs 23.79 trillion. Bank’s Managing Director and Chief Executive Officer Sashidhar Jagdishan said: “This time around we were surprised with the period-end numbers because of some unexpected flows in the current account, which were more than what we had anticipated.”

The bank has indicated that it would grow its advances slower than its deposits to bring down its elevated credit-deposit ratio. During the analyst call, post the bank’s earnings, the lender had indicated that it would not be involved in any competition on interest rates to attract deposits. Rather, it would rely on “engagement and service delivery” to get deposits.

“The rate is not a predominant determinant or driver for us to have an engagement. We don’t get into rate competition; we are priced fairly with our peers. And this is not something that we want to use to gather more deposits,” the bank’s senior management had stated.

Meanwhile, multiple public-sector banks, including State Bank of India (SBI) and Bank of Baroda (BoB), have launched special deposit schemes and are offering attractive interest rates for a limited period of time to garner more deposits as the loan deposit ratio (LDR) of banks are at an elevated level, exacerbating concerns of the Reserve Bank of India (RBI).

“With current LDRs for banks in India at approximately 77 per cent and deposit growth running at 300 basis points below loan growth, there is pressure on resource mobilisation to fund increasing loan requirements. The RBI also has been consistently monitoring banks to ensure that LDR ratios are in check. Hence, there is upward pressure on deposit rates,” Ganapathy said. 

SBI’s 444-day monsoon special retail deposit scheme is offering 7.25 per cent interest, while BoB said its special scheme dubbed “the BoB Monsoon Dhamaka Deposit Scheme” comes with two tenure buckets, offering interest rates of 7.25 per cent per annum for 399 days and 7.15 per cent per annum for 333 days.