Bank of Baroda on Wednesday raised interest rates on fixed deposits of below Rs 2 crore by 5-20 basis points (bps) on some tenures. With this, the bank will pay an interest rate of 5.50% for one-year deposit. For deposits of longer tenure, the lender will pay an interest rate of up to 5.65%, according to information on its website.
BoB has also increased the interest rate on tax-savings term deposit by 15 bps with tenure from five to 10 year to 5.65%. The bank offers 50 bps higher interest rates to senior citizens.
Most banks are raising deposit rates to garner funds to support credit growth. The Reserve Bank of India’s (RBI) bond auctions and higher loan growth compared with the deposit growth have resulted in further drain on liquidity, as per a report by Crisil. Banking sector total deposits grew 9.5%, trailing the credit growth rate of 15%. Banks’ deposits outstanding were at Rs 169.9 trillion for the fortnight ended August 26.
RBI Governor Shaktikanta Das recently said banks will have to raise additional capital in case they are to sustain lending within this loan demand, adding that the strong growth in credit was based on much lower growth in the previous year. Das also said banks were under pressure to raise deposit rates due to RBI’s withdrawal of excess liquidity and that the difference between lending rates and deposit rates was narrowing. Banks are raising interest rates on retail deposits and foreign currency deposits.