Senior Citizen Fixed Deposit interest rate increase could be a thing of past. Here’s why

SBI Research on Deposit Rates: Senior Citizens and other depositors have enjoyed a spate of Fixed Deposit interest rate hikes since last year. FD interest in some banks has gone up over 9%. However, this spate of FD rate hikes could soon be a thing of the past, according to a report by SBI Research.

As per the report, further deposit rate hikes may not be expected because of increasing deposit growth in banks this year.

“Overall deposit growth in FY24 should grow over 11% yoy. This will effectively imply that spate of deposit rate hikes could be a thing of the past,” SBI Research said.

The deposits in banks have jumped since the RBI decided to withdraw Rs 2000 notes from circulation. The central bank also asked members of the public to deposit or exchange their Rs 2000 notes in banks by September 30.

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According to SBI Research, bank deposits are likely to increase by Rs 2 lakh crore.

“Meanwhile, liquidity surplus in the system has again increased with the Net LAF absorption at Rs 2.2 lakh crore as on 07 June from an average of Rs 1.0 lakh crore in Apr-May’23. The government surplus cash balances has also started declining from the 3rd week of May. Even the deposit of Rs 2000 notes in banks has added to the liquidity. As we have earlier highlighted, around 85% of the Rs 2000 notes are deposited in the bank accounts and not exchanged for smaller denominations. Thus, bank deposits are likely to increase by atleast Rs 2 lakh crore assuming some of the notes would already be with banks in currency chests,” the report said.

Meanwhile, the RBI today decided to keep the repo rate unchanged at 6.5%. With the pause in the repo rate hike cycle, many financial experts are also saying that further FD rate hikes may not be expected.

The RBI Governor Shaktikanta Das said as many as 50% of the Rs 2000 notes in circulation have returned to the banks since the announcement of withdrawal last month. Also, the central bank has no plans to withdraw Rs 500 notes or re-introduce Rs 1000 notes.

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According to SBI Research, there has been a decline in the currency in circulation since the 3rd week of May. “The latest data for the week ended 2 Jun’23 shows currency in circulation at Rs 34.14 lakh crore, down by Rs 63,492 crore from 19 May’23,” it said.