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Banks may raise FD rates further amid competition for share of deposits: RBI
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
As returns on fixed deposits improved and differentials with savings deposit rate increased in the recent period, the lion’s share of bank deposits accrued to term deposits, the central bank said.
The Reserve Bank of India (RBI), in its March 2023 bulletin, said that the intensifying competition among banks to expand their deposit base may impel lenders to increase deposit rates going ahead. Notably, banks have been increasing deposit rates after a series of rate hikes by the central bank. RBI has raised repo rate cumulatively by 250 basis points to 6.50 percent since the beginning of the rate hike cycle in May 2022.
Consequently, banks have followed suit and raised interest rates on their fixed deposits.
According to RBI, the median term deposit rates (i.e., average card rates on retail deposits) on fresh deposits have increased by 82 bps during May 2022 to February 2023.
As returns on fixed deposits improved and differentials with savings deposit rate increased in the recent period, the lion’s share of bank deposits accrued to term deposits, the central bank said.
On an annual (y-o-y) basis, term deposits recorded a growth of 13.2 percent, whereas current and savings deposits increased at a moderate pace of 4.6 percent and 7.3 percent, respectively, it noted.
On the overall economy, RBI said that India would not slow down and maintain the pace of expansion achieved in 2022-23.
The NSO’s end-February data release indicates that the Indian economy is intrinsically better positioned than many parts of the world to head into a challenging year ahead, mainly because of its demonstrated resilience and its reliance on domestic drivers, it said.
Even as global growth is set to slow down or even enter a recession in 2023 as global financial markets wager, India has emerged from the pandemic years stronger than initially thought, with a steady gathering of momentum since the second quarter of the current financial year, it said.
“Year-on-year growth rates do not reflect this pick-up of pace because by construction they are saddled with statistical base effects, and instead suggest a sequential slowing down through successive quarters of 2022-23 to an unsuspecting reader,” said the bulletin.
–With PTI inputs
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