Amid the surge in deposits resulting from the withdrawal of R500 and R1,000 currency notes, state-owned lenders — Dena Bank and Syndicate Bank —reduced interest rates on some fixed deposits to lower-than-the-comparable rates offered by State Bank of India (SBI), the largest lender.
Dena Bank now pays 4% on one-year deposits of between Rs 1 crore and Rs 5 crore, as against SBI’s 4.25%. Till earlier this week, Dena Bank paid 5% interest on such deposits.
Syndicate Bank has slashed rates on retail term deposits of maturities between one year and three years by 25-50 basis points (bps), effective December 19. The rates of interest on one-, two- and three-year deposits with the bank now stand at 6.8%, 6.5%, and 6.5%, respectively. The comparable rates for SBI are 6.9%, 6.85% and 6.5%.
Banks have garnered deposits worth Rs 12.44 lakh crore between November 9 and December 10, according to the Reserve Bank of India (RBI).
Public-sector lenders are believed to have received a larger share of the deposits than their privately-owned peers because of their relatively larger branch network. Banks had started cutting deposit rates even before the government’s demonetisation announcement, in the wake of the RBI’s 25-bps cut in the repo rate at its October 5 monetary policy review.
The withdrawal of high-currency notes has resulted in a further decline in the cost of funds with the banking sector.