With money pouring in owing to the demonetisation of Rs 500 and Rs 1,000 currency notes, banks continue to cut deposit rates. On Monday, the country’s third-largest private sector lender, Axis Bank, reduced rates on fixed deposits of tenures between one and three years by 25 to 50 basis points (bps).
At 7%, the interest rate offered by the bank on one-year deposits, is now on par with that offered by larger rivals – ICICI Bank and HDFC Bank.
The lender reduced rates on two- and three-year deposits by 50 bps to 6.75%.State-owned lenders Bank of Baroda, Punjab National Bank (PNB), IDBI Bank and Syndicate Bank have also cut rates on one-, two- and three-year deposits by between 10 and 40 bps.
One-year deposits with Bank of Baroda, PNB and Dena Bank will now earn interest at the rate of 7%, while those with IDBI Bank will earn 7.15%. Syndicate Bank will offer 7.3% on one-year deposits. The country’s largest bank, State Bank of India,
reduced its one-year interest rate to 6.9%, effective November 17.
The government’s recent move to demonetise notes of Rs 500 and Rs 1,000 denominations has resulted in deposits with banks rising. On Monday, the Reserve Bank of
India said banks reported having received deposits worth Rs 5,11,565 crore between November 10, the first working day after demonetisation was announced, and November 18.
Deposits rose 9.82% year-on-year in the fortnight ended October 28, with the outstanding deposits in the banking system standing at Rs 99.84 lakh crore.
In a note dated November 19, Deutsche Bank wrote state-owned banks are poised to gain the most from the accelerated accretion of deposits in the system. “The impact on PBT (profit before tax) should be 5/15% (for FY18E) for private/PSBs (public sector banks), as most deposits will come to PSBs due to their distribution network. We raise our target prices by 7-35% for PSU banks,” the note said.
The investment bank sees about 80% of high-denomination bank notes entering the system in the form of deposits, of which about 40% is expected to remain in the system over time.
“This is likely to increase the deposit growth by 9-10% over the next two months and by 5% over time,” Deutsche Bank wrote.