From SBI to BoB: Banks woo customers with special schemes as deposits fall

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Faced with a decline in deposits, many banks in India are rolling out special deposit schemes to attract customers. These schemes often come with higher interest rates and features designed to bring in more funds.

"These FDs are termed ‘special’ because they offer unique features that differentiate them from regular fixed deposits, making them an attractive option for investors. One of the primary reasons special FDs are appealing is the higher interest rates they offer compared to regular FDs," says Adhil Shetty, CEO of Bankbazaar.com.

SBI's Amrit Vrishti Scheme

The State Bank of India (SBI) has introduced the Amrit Vrishti scheme, a 444-day fixed deposit plan offering 7.25% interest per year for regular customers and 7.75% for senior citizens. This scheme, launched on July 15, 2024, is available until March 31, 2025 and can be accessed through various SBI platforms, including branches and online services.

Bank of Baroda's Monsoon Dhamaka Scheme

In July 2024, Bank of Baroda launched its ‘Monsoon Dhamaka Deposit Scheme,’ offering an interest rate of 7.25% for a 399-day term and 7.15% for a 333-day term. Senior citizens receive an additional 0.50% interest rate, making the rates 7.75% and 7.65%, respectively.

Other offers

IDBI Bank has also increased its fixed deposit rates, now offering 7.85% for a 444-day term and 7.75% for a 375-day term. Similarly, the Bank of Maharashtra introduced several FD plans with tenures ranging from 200 to 777 days, offering interest rates up to 7.25%.

Why are banks struggling with deposits?

Despite these attractive offers, many banks have reported a decline in their deposits for the quarter ending June 2024. Customers are increasingly looking at alternative investment avenues, such as the capital markets, in search of better returns.

SBI saw its deposits fall to Rs 49.01 lakh crore in June 2024, down from Rs 49.16 trillion in March 2024. Bank of Baroda experienced a similar decline, with deposits dropping from Rs 13.26 trillion to Rs 13.06 trillion during the same period. Even private sector giant HDFC Bank saw its deposit base remain flat at Rs 23.76 lakh crore in June 2024.

Current Account and Savings Account (CASA) deposits, which are usually a stable source of funds for banks, also declined. For instance, SBI’s CASA deposits fell from Rs 19.14 trillion in March 2024 to Rs 19.41 trillion in June 2024, adding to the banks’ concerns.

What is credit-deposit ratio

Credit-deposit (CD) ratio measures how much of a bank’s deposits are being lent out as loans. A balanced CD ratio is necessary for maintaining liquidity and ensuring that banks can meet withdrawal demands while still profiting from loans.

Why is it important?

Liquidity management: A high CD ratio indicates that most deposits are tied up in loans, which can be risky if there’s a sudden surge in withdrawals. A low ratio, on the other hand, might suggest that the bank is not making the most of its available funds.

Risk assessment: Regulators closely monitor this ratio. A very high CD ratio could signal potential risk, while a very low one might indicate overly conservative lending practices.

Profitability and growth: An optimal CD ratio helps banks strike a balance between profitability and stability, ensuring that loans generate income without compromising the bank’s ability to meet depositor demands.

Economic indicator: The CD ratio can also reflect the state of the broader economy. An increasing ratio during economic booms suggests active lending, while a declining ratio during downturns indicates caution.

Regulatory compliance: Central banks often set guidelines for this ratio to ensure financial stability, and banks that do not comply may face penalties.

RBI’s concerns over sluggish deposits

The Reserve Bank of India (RBI) is increasingly concerned about the widening gap between high borrowing and sluggish deposit growth. This situation has resulted in the worst deposit crunch in two decades, with the CD ratio now at its highest in 10 years.

Customers are borrowing more, particularly for home loans, but the slower deposit growth is creating an asset-liability mismatch for banks. RBI Governor Shaktikanta Das said, “Young Indians are aspirational, and there is nothing wrong with that. It is a natural process and actually a positive development. Our advice to banks is that you should carefully monitor this change. Currently, this is not an issue, but in the future, this can lead to a structural liquidity issue.”

Finance Minister Nirmala Sitharaman recently held a meeting with heads of public sector banks, urging them to focus on increasing deposit growth. She emphasised the need for innovative products to attract deposits and address the mismatch between assets and liabilities. With deposits growing 300-400 basis points slower than credit growth, banks are under pressure to boost their deposit base quickly.