Private-sector lender Kotak Mahindra Bank has reduced the interest rate on one-year fixed deposits (FDs) by 25 basis points (bps) to 7%, lower than 7.05% offered by the State Bank of India (SBI) on deposits of the same tenure. The new rate came into effect on Monday.
Kotak is the second lender after larger peer HDFC Bank to offer lower rates on one-year FDs than the country’s largest bank. SBI had effected a 10-bps cut on its one-year deposits, effective October 24, to push the rate down to a six-year low. Following that, HDFC Bank had slashed the rate on one-year deposits by 25 bps to 7%, effective November 8.
Kotak has also reduced rates on two- and three-year deposits by 50 bps each to 6.75%. SBI pays interest at the rate of 7% and 6.5% on its two- and three-year deposits, respectively, while HDFC Bank offers 7% on deposits of both tenures.
ICICI Bank and Axis Bank continue to hold rates on one-, two- and three-year deposits at 7.25%.
The government’s recent move to demonetise notes of Rs 500 and Rs 1,000 has resulted in deposits with banks rising. The excess liquidity may put pressure on banks’ margins in an environment of tepid credit growth, unless they reduce the interest they pay on deposits.