Some large banks have raised their retail deposit rates by 10-25 basis points (bps) over the last two weeks in an environment where the pace of credit growth has quickened. Bankers said the rate adjustments are also somewhat technical in nature, as lenders need to adjust their asset liability management (ALM) positions in keeping with regulatory norms.
State Bank of India (SBI) has raised its interest rate on one-year deposits of under Rs 2 crore by 10 basis points to 5.1% per annum, effective January 15. HDFC Bank will pay 5-10 basis points more than earlier on retail deposits with maturities of over two years. Yes Bank has raised rates by up to 75 bps in some buckets. One-year deposits of under Rs 2 crore with Yes Bank now yield 5.75%, up from 5.5% in December.
“The rate hikes have been made only in specific maturity buckets and they are relatively small. These are technical adjustments being made by banks to meet their ALM requirements and not really a sign of an uptrend in rates,” a senior executive with a mid-sized private bank said.
The rise in deposit rates is partly attributable to an improvement in demand for credit. According to data released by the Reserve Bank of India (RBI), non-food credit grew 9.28% year-on-year (y-o-y) during the fortnight ended December 31, picking up sharply from the 7.51% growth seen in the previous fortnight.
In a recent note, analysts at SBI’s economic research department said the incremental credit deposit ratio (CD) ratio beginning Q3FY22 was at 133 against an incremental CD ratio of only 2 during H1FY22. At the same time, banks remain flush with liquidity. The surplus liquidity in the system stood at Rs 7.47 lakh crore as on January 14.
Soumyajit Niyogi, associate director, India Ratings & Research, said besides credit growth improving, competition from other asset classes is also responsible for the rising deposit rates. “There is competition from mutual funds and once a bank loses a customer to other asset classes, it is very difficult to bring them back. Deposit rates were anyway at multi-decade lows and now market yields are rising. Credit growth is also showing initial signs of improvement,” he said.
These deposit rate hikes should not be taken to be an indicator of faster normalisation of liquidity in the system, Niyogi added, because on an incremental basis, credit growth is yet to take off in a meaningful way.