The two largest private sector lenders – HDFC Bank and ICICI Bank – slashed bulk deposit rates by up to 50 basis points on Wednesday, a month after the Reserve Bank of India cut the repo rate for the third time in 2015 by 25 basis points to 7.25%.
While ICICI Bank cut deposit rates by 25 bps across various maturities, HDFC Bank cut rates by a bigger 50 bps. Public sector infrastructure-focused lender IDBI Bank also followed suit to cut interest rates on high-value fixed deposits by up to 55 bps. While the revised interest rates are applicable from July 1 for ICICI Bank, it’s a day prior to that for IDBI Bank.
Earlier this month, Axis Bank and Bank of Baroda reduced interest rate for certain term deposits by 25 bps while Oriental Bank of Commerce decreased it by 25 bps.
Three policy rate cuts and a tepid credit offtake have compelled banks to continue to trim deposit rates even as government-sponsored deposit schemes, such as Sukanya Samriddhi, offer higher interest rates and threaten to lure depositors away from banks. Bankers have expressed concern over a likely flight of deposits from them to such schemes as these offer high rates.
Deposits with banks grew by 11.42% in FY15, with the outstanding amount reported at R85.86 lakh crore, the lowest growth since 1961. In the same period, most public sector banks saw a deposit growth of 14% while private banks witnessed an increase in the range of 8% to 22%. Banks have cut deposit rates several times now over the last one year, driven by reductions in the RBI’s policy rate. But such deposit rate cuts have been uneven across tenures.
Non-food credit offtake of banks shrank 3.32% or R25 lakh crore between April 3 and June 12, data from the RBI showed. Outstanding non-food credit stood at R65.36 lakh crore as of June 12, a growth of 9.82% from a year ago and sharply down from R67.62 lakh crore as of April 3.
In the Union Budget for 2015-16, the government launched a new deposit scheme called Sukanya Samriddhi wherein individuals can deposit a minimum of R1,000 yearly as a guardian for a girl child. The scheme pays an interest of 9.2% and no withdrawals are allowed until the child reaches the age of 21 years.