With the banking sector grappling with slow deposit growth, lenders are increasingly turning to special fixed deposit (FDs) schemes.

RBL Bank and Bandhan Bank have launched special FDs this week, offering up to 8.8% interest on deposits with tenures of 500 days and one year and nine months. Last month, State Bank of India, Bank of Baroda, Bank of India and Bank of Maharashtra launched similar FDs offering up to 7.80% interest rate to depositors. Bankers say that such deposits help banks raise funds quickly.

“Banks want to increase deposit while being mindful not to let the cost of such deposits rise too much. They are cautious about raising interest rates across all tenures, as they expect that interest rate cuts may begin later this year,” Reetesh Bhambri, head of retail liabilities, RBL Bank, told FE. “A specific number of days and a clear theme help customers remember the product. Based on past experience, special fixed deposits have proven effective for banks in raising funds quickly.”

With new launches, FD rates have reached very close to the 9% mark. RBL Bank is offering 8.85% on its 500-day deposit to super-senior citizens and 8.60% to senior citizens. A super-senior citizen is an individual whose age is 80 years or more. Public sector banks are offering 7.25% to 7.80% on these FDs.

“Smaller and mid-sized banks usually offer higher rates than larger peers because their branch network and workforce are smaller. It is relatively easy for larger banks to mobilse deposits due to their huge branch network and employee strength,” said a senior official of a public sector bank.

With the help of aggressive marketing and competitive rates, private lenders have increased their share in total term deposits. According to RBI data, the share of private banks’ term deposits rose to 33% as of March 2024, from 30% last year, while that of public sector banks declined to 58.5% from 61% over the same period. Term deposits of private banks grew by 30% to reach Rs 38 trillion as of March 2024 while public sector banks’ term deposits rose 12.7% to Rs 67.7 trillion.

Deposits are growing slower than credit, posing a challenge for banks to mobilise low-cost deposits. Banks credit grew 17.3% to reach Rs 168.8 lakh crore for the fortnight ended June 28, 2024, while deposits increased 11.1% to Rs 212.9 lakh crore, Reserve Bank of India data show.