Indian lenders expect pick up in retail deposits as rates rise

Ujjivan Small Finance Bank

24/01/2023 10:19

By Siddhi Nayak and Nupur Anand
       MUMBAI, Jan 24 (Reuters) - Indian lenders are expecting
stronger inflows of retail deposits as the interest rates
offered to individuals to park money with banks have risen in
recent months, bringing them at par with those offered by
government small saving schemes.
    The weighted average rate on domestic term deposits has
increased by 55 basis points to 5.62% in November from 5.07% in
May, when the Reserve Bank of India began its rate hike cycle,
as per central bank data.
    Government-backed small savings schemes, on the other hand,
offer anywhere between 4-7.60% currently. While that is the same
as when the RBI started raising rates, the rates on one-, two-
and three-year time deposits were hiked by 110 basis points each
for the January-March quarter from the prior three-month period.
    Banks started raising lending rates almost immediately after
the RBI's first rate hike last May, but started increasing
deposit rates roughly only around June.
    Currently, most large lenders offer deposit rates between
6.75% and 7.30% for 1-2 year deposits and between 5.75% and
7.25% for longer-term deposits.
    Smaller banks such as AU Small Finance Bank Ltd  AUFI.NS 
and DCB Bank Ltd  DCBA.NS  offer even higher rates, of about
7.5% to 7.75%.
      Bank FD Rates (%)          1-2 years     3-5 years
 State Bank of India  SBI.NS       6.75            6.25
 Bank of Baroda  BOB.NS            7.05            6.25
 HDFC Bank  HDBK.NS                  7               7
 ICICI Bank  ICBK.NS                 7               7
 Axis Bank  AXBK.NS                7.26              7
 Data as on respective banks’                 
 website on Jan. 20. Compiled                 
 by BankBazaar.com                            
    Bank lending is growing at a faster clip than deposits
currently, but this difference in growth rates is expected to
narrow in the coming months due to higher rates, said Prashant
Kumar, MD of Yes Bank.
    Loans given by Indian banks rose nearly 15% in the fortnight
ending Dec. 30, compared with the same period a year ago, while
deposits rose only 9.2%, according to the latest RBI data.
    The narrowing difference between rates on bank deposits and
government small savings schemes would, bankers said, mean more
retail funds flowing into term deposits.
    "There could be a shift in investments from small savings
schemes to bank deposits," said Suresh Khatanhar, deputy
managing director at IDBI Bank. He expects deposit rates can go
up by another 25 basis points across the system.
    Federal Bank's executive director Shalini Warrier agreed.
    "Incremental flow of funds is likely to be more towards bank
deposits compared to small savings schemes as differences in
interest rates get narrowed," said Warrier. "We are
already witnessing it happening and it is likely to pick up."
    
 Small saving scheme                Rates in percentage
 Post Office Savings Deposit        4.00
 1-year Time Deposit                6.60
 2-year Time Deposit                6.80
 3-year Time Deposit                6.90
 5-year Time Deposit                7.00
 5-year Recurring Deposit           5.80
 Monthly Income Account Scheme      7.10
 Sukanya Samriddhi Account Scheme   7.60
 Public Provident Fund Scheme       7.10
 National Savings Certificate       7.00
 Kisan Vikas Patra                  7.20
 (Reporting by Siddhi Nayak and Nupur Anand; Editing by Savio
D'Souza)
 ((Siddhi.Nayak@thomsonreuters.com; +91 22 6921 7848;))