Kotak Mahindra Bank may evaluate a further hike in its fixed deposit (FD) rate if prevailing market conditions are conducive, Virat Diwanji, group president and head – consumer bank, said.
On Thursday, the bank hiked its FD rate for the third time in a week. It hiked the interest rate on deposits of tenures of 390 days, 391 days-to-23 months, and 23 months by 25 basis points.
After the latest hike, the bank offers regular citizens an interest rate of up to 7% on deposits of below Rs 2 crore. It offers an interest rate of up to 7.5% on senior citizens’ deposits.
“This hike was linked to the change in the repo rate and how the competition reacts to it. In the market, the demand rush for liabilities is huge. By and large, all banks which want to change the deposit rate have done that,” Diwanji said.
Previously, the bank had revised its interest rate on fixed deposits on Tuesday, after the RBI hiked its repo rate by 35 bps in its latest monetary policy. Subsequently, it hiked the interest rate on its deposits by 25-50 basis points across tenures on Wednesday.
The latest hike came when the competition among banks to garner deposits has intensified, as global central banks have attempted to remove excess liquidity from the financial system.
Also read: RBI asks Razorpay to pause onboarding merchants
In fact, State Bank of India hiked its fixed deposit rates by 25 basis points on Thursday. HDFC Bank also raised its interest rate on most retail term deposits by 40-75 basis points on Wednesday.
Going forward, analysts expect banks to continue hiking the interest rate on their deposits at least for the remainder of FY23.
But, the impact of these hikes on the net interest margins of banks will be limited as the re-pricing of deposits occurs with a lag when compared to advances.
“The increase in deposit cost of banks will show up 5-6 months later. NIM may get compressed, but this will happen 3-6 months down the line,” Jindal Haria, financial institutions director, India Ratings, said.
Also read: ‘2023 will be the year of the evolved traveller’
Akin to the hike in the deposit rate, SBI has hiked its marginal cost of funds-based lending rate (MCLR) by 25 basis points across all loan tenures on Thursday. HDFC Bank had also hiked its MCLR by 5-10 basis points across loan tenures from December 7.
“There is also a CASA element in the cost of funds that eventually works out. So, from that point of view, it is very difficult to predict net interest margin in absolute number terms. But, we do not expect it to be impacted adversely,” Diwanji said.