80% of all term deposits are in Rs 15 lakh-1 cr ticket size with 1-3-yr duration

Deposit mobilization by banks continued to remain skewed in the 1-3-year bucket and it continues to rise consistently.

Investors continue to show a strong preference for fixed deposits in the one to three-year category due to preferable interest rates of 7-8 per cent for shorter tenures, said Kotak Institutional Equities in a note.

The interest rate differential between shorter and longer tenures is probably pushing investors always from longer-term deposits while 80 per cent of the overall term deposits are either in Rs 10 lakh to Rs 1 crore category, noted the report.  Of this 60 per cent of individual term deposits are in the Rs 10 lakh to Rs 1 crore range.

"55% of the deposits are in the 7-8% interest rate bucket. Note that the marginal deposit rate for 1-year deposits is in this bucket and the contribution of these deposits is 65% of the overall term deposit," said the report.

While comparing current term deposit interest rates and the headline rates offered by banks, Kotak believes India is now moving closer to peak deposit rates for the system. "t is still not complete and we probably have a couple of quarters before rates have peaked. However, there is likely to be intense competition to source deposits, especially since that is a lot more retail in nature given the linkages to LCR. A higher share of non-individuals that is non-operational tends to have negative implications in deploying it," said Kotak Institutional Equities. 

As per their assessment, which is based on RBI’s update on quarterly deposits, deposit mobilization by banks continues to remain skewed in the 1-3-year bucket and it continues to rise consistently."There is 10% point jump in 7-8% interest rate bucket, suggesting we are moving closer to headline deposit rates. We should see deposit rates closer to peak levels," noted the report.

Disclosure: Entities controlled by the Kotak family have a significant holding in Business Standard Pvt Ltdt