The share of term deposits offering an interest rate of 6-8% has surged to nearly 80% at the end of September from 58% at the end of March, Reserve Bank of India (RBI) data shows.
Approximately half of the fixed deposits (FDs) with banks, amounting to Rs 52.87 trillion, now offer an interest rate of 7-8%.
Suresh Khatanhar, DMD, IDBI Bank, said the liquidity deficit in the banking system was at a five-year low and banks need funds to meet credit demand. “The rates on deposits are bound to go up, but banks are not too concerned at the higher cost because credit demand is strong,” Khatanhar added.
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The cost of funds for banks has risen since the share of term deposits carrying sub-6% interest rates declined to 16.7% in September from 38.7% in March. The amount parked in deposits offering less than 6% interest halved to Rs 17.59 trillion at the end of September from Rs 36.82 trillion at the end of March.
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Industry players say depositors are not only moving funds from low to high-yielding FDs, but they are also changing banks in search of high rates. “Raising funds will hurt the net interest margins of banks,” a senior banker with a private sector lender told FE.
Banks have seen a decline in low-cost Current Account-Savings Account base in the first and second quarters of FY24 as depositors shifted their funds to high-paying FDs. Small and mid-sized banks are posing stiff competition to large lenders by aggressively hiking rates on FDs to acquire new customers.
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The competition has compelled lenders to offer high interest on shorter-duration FDs. Banks are offering 4.5 to 6% interest on FDs maturing between six months and one year, and 7-8% on FDs maturing in one to two years.
The share of term deposits offering 6-7% interest increased marginally to 28.6% at the end of September from 27.5% at the end of March. Funds in these buckets grew from Rs 30.24 trillion as of September to Rs 26.1 trillion as of March.
