Banks Raise Deposit Rates Amid Festive Season Credit Demand

Major commercial banks in India are increasing interest rates on fixed deposits in response to the Reserve Bank of India's (RBI) revised benchmark lending rates. This move aims to capitalize on the expected surge in credit demand during the festive season and subsequent months. At least seven prominent banks, including SBI, HDFC Bank, and ICICI Bank, have revised their deposit rates by 15 to 50 basis points. As credit growth remains strong, driven by factors like low base effect and elevated inflation, banks are looking to raise deposit rates to support this trend.

Key Takeaways:

• At least seven commercial banks, including SBI, HDFC Bank, ICICI Bank, Indian Overseas Bank, Punjab National Bank, Indian Bank, and Kotak Mahindra Bank, have announced revised deposit rates ranging from 15 to 50 basis points.
• The RBI's revised prime lending rate by 50 basis points in the August monetary policy meeting prompted the banks to revise their lending rates.
• Bank credit growth has remained in double digits, significantly outpacing deposit growth, with the low base effect, small ticket size loans, higher working capital requirements, and shift to bank borrowings driving this trend.
• Senior director at CareEdge, Sanjay Agarwal, expects banks to raise deposit rates to support the rising credit off-take, given the narrowing liquidity in the banking system.
• Selectively, banks have already raised deposit rates across certain tenures and categories to support credit growth.

Statistics:

• The RBI raised the prime lending rate by 50 basis points in the August monetary policy meeting.
• At least seven commercial banks have revised their deposit rates by 15 to 50 basis points.
• Bank credit growth has remained in double digits, outpacing deposit growth, with a low base effect, small ticket size loans, and elevated inflation driving this trend.